consumer confidence boosts the market
There are some
pockets of the country that aren't following
the national trend. For example, "in the
Midwest, they've just experienced job losses
in the last year," says Porter. Unsurprisingly,
"confidence is the lowest in that part
of the country," he says.
But for the most part, analysts expect the national labor market to remain strong and interest rates to remain stable, meaning consumer confidence isn't expected to take a nosedive anytime soon.
More difficult to predict are
the noneconomic factors that can play a role
in consumer confidence levels. Major geopolitical
events such as Hurricane Katrina and the beginning
of the Iraq war are examples of major geopolitical
events in which consumer confidence dropped
even though economic factors were good.
But even if a major disaster or tragedy shakes consumer confidence, experts say such events don't typically create lasting effects. "The rule of thumb is that if there are no economic repercussions, confidence will bounce back to previous levels within two to three months," Franco says.
Words of caution
However, some experts caution against assuming that rising consumer confidence will lead to a booming real estate market.
While rising consumer confidence
levels generally coincide with increasing home
sales, there have been exceptions to that rule.
"Consumer confidence wasn't
going off the charts during the last recession
but the housing market was very strong and stayed
strong throughout the entire recession,"
says Dian Hymer, a real estate broker and author
of "Starting Out: The Complete Home Buyer's
Guide." The opposite could prove true,
as well, with high consumer confidence and low
home sales, she says.
Likewise, "consumers may
have confidence, but they also need the ability
to buy a house," says Celia Chen, director
of Housing Economics for Moody's Economy.com.
"Mortgage delinquencies are
rising, particularly among subprime loans and
nontraditional loans," Chen says. "The
regulators are worried, so they've been asking
lenders to be more cautious about lending."
As a result, it's harder for some
consumers to get loan products in which the
initial payments are very low. "As that
type of lending dissipates or shrinks a bit,
it will be harder for households to purchase
homes," Chen says.
Experts also point out that other
factors such as the national inventory level
play a bigger role in the success of the housing
market than consumer confidence. If there are
too many sellers
and not enough buyers,
the market will continue to sputter, they say.
Finally, consumers don't necessarily
drive the market. "While consumers are
very important in the housing market, part of
the reason that we saw the strong boom in housing
over the last couple of years was due to investors,"
Chen says. "Investor confidence is still
weak, particularly when you think about certain
markets where investors who purchased homes
a year ago or a year and a half ago are now
not able to unload these homes and make money."
While experts differ on how much of an impact rising consumer confidence levels will ultimately have in 2007, most agree that it can't hurt the market.
"There are certainly a lot
more buyers out looking for houses and interested
in the market right now than there were in November
and December," Hymer says.
But whether that translates into
sales remains to be seen, she says.