Economist's Commentary: March 5, 2008

A Glimmer of Confidence

By Ken Fears, Manager, Regional Economics

Consumer confidence fell 14.1% to 75.0 in February, its lowest point since March of 2003. Sentiments have been pummeled by soft stock markets, record corporate losses, record high oil prices, and a sluggish economy.

But there is a glimmer of hope for the housing market. When asked of their plans to buy a home, consumers’ expectations increased for the first time since August, rising from a reading of 2.5 to 2.7. This change is not large by any measure, but the change in direction is important if it becomes a trend. We will monitor this component carefully given that the current soft sales are heavily driven by the lack of confidence.

Demand for housing fell sharply after the mortgage market melt-down in July. Not surprisingly, this survey’s measure of “plans to purchase of home” fell continuously from August through December. But, anecdotal evidence suggested that Realtors were seeing increased foot traffic and showing starting in January of 2008 after interest rates eased below 6.0%. Furthermore, NAR housing affordability measure has been trending up – thanks to lower interest rates, higher income, and lower median national home price. More people have the financial capacity, but they did not have the confidence. The latest reading on consumer confidence, however, is the first concrete evidence of a change in potential home-buyer sentiment. Furthermore, this improvement came at a time when overall consumers’ attitudes (outside of the question about housing) fell by the largest amount since February of 2006.

This is one in a series of commentaries by the Research staff of the National Association of REALTORS®. Read more commentaries >

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