Daily Forecast Update: Consumer Confidence, Case/Shiller Index

October 27, 2009

By Danielle Hale, Research Economist 

Daily Forecast Update

• NAR monthly official forecast as of October 1
• GDP 2009 Q3:  +3.0%
• GDP 2009 Q4:  +2.1% ↓
• GDP 2010 Q1:  +3.1% ↓
• Unemployment rate by the end of 2009: 10.2%
• Average 30-year fixed mortgage rate by the end of 2009: 5.3%

What does today's data mean for REALTORS® and consumers?

• There were many positive indicators in October, most notably the stock markets. The S&P went from 477 on October 1 to 507 October 19, and on October 14 the Dow Jones Industrial Average broke 10,000 for the first time since October 2008. Despite this good news, preliminary figures for Consumer Confidence in October (which had a cutoff date of October 21) declined for the second month in a row and this drags down GDP growth in the fourth and first quarters.
• Consumer Confidence is impacted by responses consumers give to questions on the job market. They are asked whether jobs are "hard to get" or "plentiful," and they are also asked about whether they expect more or fewer jobs in the months ahead. In response to these questions, a greater share thought jobs were hard to get and fewer in the months ahead while a smaller share described jobs as plentiful and expected more jobs in the months ahead.
• In addition to job concerns, many home owners have not yet seen an improvement in their equity position. That is, despite the fact that they may be paying their mortgage each month, price declines have eaten into the wealth they had saved in their homes.
• Since home owners are 67.4 percent of households in the most recent data and those with direct or indirect stock holdings are 51.1 percent of families in 2007, stabilization of home prices will benefit a wider group of consumers and is more likely to positively impact Consumer Confidence than continued gains in the stock market without gains in home prices.
• Fortunately, Case Shiller data is in line with recent trends shown in data produced by the National Association of Realtors® and the Federal Housing Finance Authority (FHFA). Year over year price declines in the late summer and early fall are not as steep as they were in the spring and early summer suggesting that price stabilization is occurring. Demand from buyers pulled to the market by the first-time home buyer tax credit has helped to stabilize prices, and an extension of the tax credit is likely to ensure that this trend continues.
• For information on the behavior of home equity in your metro area over the past 5, 10, 15, or 20 years, check out NAR's Metro Area Wealth Gain presentations and the associated commentary.
• For more information on the differences between various measures of home prices, check out NAR's What's in a Price webpage.

Consumer Confidence

• Consumer Confidence took another hit in October declining from 53.4 to 47.7. The decline was due to retreats in both the present situation and expectations index. Confidence in the present situation fell from 23.0 to 20.7. Expectations fell from 73.7 to 65.7.
• Since Consumer Confidence has been measured in 1967, the average reading has been about 95 and the median about 98. The median and averages for the present situation are slightly higher while the median and averages for expectations are slightly lower. The present situation index is the most variable while the expectations index is the least variable of the three.
• While the overall index is not at the lowest level of the current recession, the index for the present situation is at its lowest level since February 1983.

Case Shiller Price Index (August)

• Today, Case Shiller reported that home prices in their August 10 and 20 city metro index increased for the third month in a row by 1.0 percent each in the seasonally adjusted series. The two previous monthly increases were also around 1 percent. This brings the year over year change in house prices to 10.6 and 11.3 percent rates of decline for the 10 and 20-city index, respectively.
• This compares interestingly with the FHFA purchase-only index for August released last week that showed that national home prices declined 0.3 percent month-to-month. This was after a 0.3 percent monthly increase in July. For the year ending in August, FHFA reported that prices declined 3.6 percent.
• The National Association of Realtors® also keeps track of prices. The August median price reported by NAR declined 12.5 percent from prices in August 2008. NAR also released new price data on October 23 in conjunction with our Existing Home Sales report that showed a national price decline of 8.5 percent in the year ending September 2009. This is a substantial improvement over steeper declines seen in the early spring and summer. Next month, when FHFA and Case Shiller release newer data, we can expect further easing of declines in their measures, too.

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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