Consumer Confidence Surges as U.S. Home Prices Rise

January 28, 2015Economic Conditionsby EW News Desk Team

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Home prices and home sales continue to rise, while consumer confidence unexpectedly surged to its highest point since 2007.

Consumer confidence surged to 102.9 in January, up over 10% from its December levels. According to the Conference Board, the consumer confidence index rose on improved conditions for businesses and workers, creating an expectation of higher earnings and greater spending in the near term.

"A more positive assessment of current business and labor market conditions contributed to the improvement in consumers’ view of the present situation. Consumers also expressed a considerably higher degree of optimism regarding the short-term outlook for the economy and labor market, as well as their earnings,” said Lynn Franco, Director of Economic Indicators at The Conference Board.

Optimism about short-term business conditions rose to 18.4%, and those expecting business conditions to worsen fell to 7.7%. Consumers also are more confident that jobs will rise, and fewer consumers are expecting jobs to fall in the short term.

Home Prices, Sales Rise

On top of higher consumer confidence, data show the housing market continues to see strong price rises and greater sales.

According to the S&P Case-Shiller index, home prices rose 4.2% year-over-year in November, a slightly lower rate than in October but still strong. The index comprises of 10 cities nationally, which are seeing sustained year-over-year real estate price growth.

Despite the strong overall trend, David Blitzer, the Managing Director and Chairman of the S&P Dow Jones Index Committee said in a statement that caution is necessary, due to negative month-over-month price changes in the national index, and particular weakness in Chicago, where prices fell 1.1%, and in Detroit, where prices fell 0.9%.

"Prospects for a home run in 2015 aren’t good. Strong price gains are limited to California, Florida, the Pacific Northwest, Denver, and Dallas. Most of the rest of the country is lagging the national index gains. Moreover, these price patterns have been in place since last spring. Existing home sales were lower in 2014 than 2013, confirming these trends,” said Blitzer.

While price gains are regionally uneven and decelerating, home sales in December were strong. According to the Census Bureau, new home sales in December rose 11.6% month-over-month and 8.3% year-over-year. That equates to 481,000 annualized sales on a seasonally adjusted annual rate.

While sales are up, home supply fell over 8% from November to December, which could push prices higher in the near term.

The total supply of new homes on the market is 5.5 months, below the 6-month rate considered normal by analysts. The months’ supply of new homes spiked at more than 12 months at the height of the 2008 financial crisis.