Consumer Confidence, Home Prices Rise

American consumers are getting more confident while home prices continue to rise, as historical tailwinds turn to headwinds that are helping the country sustain its economic recovery.

After a downturn in February, the Consumer Confidence Index rose to 101.3, an increase of 2.5 percentage points from February. The Conference Board noted that the index, which measures consumers’ general feeling about future economic conditions, saw a sharp uptick while economic expectations for the future rose.

American consumers are getting more confident while home prices continue to rise, as historical tailwinds turn to headwinds that are helping the country sustain its economic recovery.

After a downturn in February, the Consumer Confidence Index rose to 101.3, an increase of 2.5 percentage points from February. The Conference Board noted that the index, which measures consumers’ general feeling about future economic conditions, saw a sharp uptick while economic expectations for the future rose.

“Consumer confidence improved in March after retreating in February. This month’s increase was driven by an improved short-term outlook for both employment and income prospects; consumers were less upbeat about business conditions,” said Lynn Franco, Director of Economic Indicators at The Conference Board. She noted that seasonal weakness in the first two months of the year may have been weather related, and is seeing a turnaround things to stronger wage and job gains broadly across the country. “Consumers’ assessment of current conditions declined for the second consecutive month, suggesting that growth may have softened in Q1, and doesn’t appear to be gaining any significant momentum heading into the spring months.”

Economists have predicted a slow but improving market for Americans, who have seen strong job gains throughout 2014 and early 2015, while income growth has stagnated and, in some industries such as energy, fallen slightly. Some economists have argued that unemployment declines are a leading indicator of income growth, which will accelerate throughout the year and cause a virtuous cycle that drives consumer confidence higher. The recent indicator suggests that the trend may have already begun.

Consumers, Houses Gain

The benefits to consumers from rising wages are apparent in the housing market, where home prices rose 4.4% year-over-year in January, according to the 10-city composite of the S&P Case-Shiller Home Price Index. The broader 20-city, which includes many smaller metropolitan areas, saw an even stronger rise, with 4.6% year-over-year gains.

The largest real estate price growth was in Denver, at 8.4% year-over-year, and Miami, with 8.3% year-over-year. San Francisco was the worst performer, with prices falling 7.9%.

S&P Dow Jones Indices Chairman David M. Blitzer says more optimistic consumer sentiment and job market gains are driving higher prices, which help more Americans enter the housing market. “The combination of low interest rates and strong consumer confidence based on solid job growth, cheap oil and low inflation continue to support further increases in home prices,” he said.

However, Blitzer also notes that homes are becoming more unaffordable for many Americans, raising questions of the sustainability of these price gains. Meanwhile, some indicators, such as the new home sector, indicate weakness in the market.

“Home prices are rising roughly twice as fast as wages, putting pressure on potential homebuyers and heightening the risk that any uptick in interest rates could be a major setback. Moreover, the new home sector is weak; residential construction is still below its pre-crisis peak. Any time before 2008 that housing starts were as low as the current rate of one million, the economy was in a recession,” he said.