Americans are feeling better about the economy, and the improving housing market is a major reason. A Gallup poll conducted in October shows that for the first time in five years, slightly more Americans are feeling better off financially than they were a year ago.
An optimistic consumer is more likely to spend, which further spurs the economy. But unlike in the past when housing lifted the economy out of a recession relatively quickly, this recovery still has a long way to go, leaving consumers more cautious this time around.
"This is not the U.S. consumer of previous recessions, by far," says Sean Snaith, director of the Institute for Economic Competitiveness at the University of Central Florida. The recent spate of good news about housing isn't enough to unleash the levels of consumer spending we saw before the recession, he adds.
Home prices and sales have been on the upswing, but Snaith says the economic recovery has been by and large "underwhelming." It's not surprising people will look to housing as an economic indicator because housing was one of the major factors that got us into the recession and has played a part in its difficult and subdued recovery, he adds. But although the financial markets have improved significantly from the recession, the housing market has only recently stopped bleeding, with homeowners climbing out of negative home equity and seeing prices rise in their neighborhoods.
Although consumer confidence is increasing and there's pent-up demand from the recession, Snaith says, "I don’t think there's been irrational exuberance as far as consumer spending is concerned. There's severe damage to the labor market, and the economy still has a long way to go."
Has the improving housing market left you feeling more confident about the economy?
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