The release of the University of Michigan Consumer Sentiment survey by Thompson Reuters indicated consumer confidence changed little in September, with a 0.7 point decline in the index to 68.2. While down slightly, this is an improvement over the preliminary estimate which pointed to a 2.3 point decline to 66.6.

Consumers felt their current circumstances had improved in September, with the index increasing to 79.6, from 78.3 the previous month.  However, they have become more pessimistic about the future, with the future expectations index falling 2.0 points to 60.2. This is likely a response to reports over the last month of the continued weakness in the United States economy and slow employment growth.

The index of buying conditions for homes was down 7 points in September, to 147. The decline was is likely a reaction to the recent weak housing demand following the expiration of the home buyer tax credit. Despite this decline, the index of buying conditions for homes remains high. This indicates that consumers recognize that housing affordability conditions are currently very favorable .  However, they are reluctant to enter the housing market due to concerns about their future job prospects and the risk of further declines in house prices, given the continuing high rate of foreclosures and weak housing demand.  

The downturn in the index of buying conditions for homes was driven by a decrease in the number of respondents identifying buying conditions to be good, down 3% to 73%, with a shift in the respondents main reasons – low interest rates (down 3% to 43%) and low prices (down 4% to 61%).

A modest rise in sales of existing single family homes in August signals that the payback from the homebuyer tax credit may be drawing to an end.  Therefore, we expect consumers’ assessment of buying conditions for homes to begin to improve over the next few months.

UMich Consumer Sentiment 09_10