According to figures released by the Conference Board last week, Americans are more confidence about the economy and labor market than they have been in the last 17 years. The confidence index rose to 129.5 last month, while the board’s consumer expectations index rose to 113.3. This is the highest reading since September 2000. Both indices measure how consumers are feeling about the future state of the economy and jobs markets. When the indices rise, the move is usually accompanied by a rise in household spending, a particularly important factor in the Q4 economic outlook thanks to the holiday season.
2017 consumers proved true to history. More consumers said that in addition to feeling good about the economy and the jobs market, they would be “stepping up purchases of appliances and big-ticket items,” including vacations, Bloomberg reported. “Consumers are entering the holiday season in very high spirits and foresee the economy expanding at a healthy pace into the early months of 2018,” said director of economic indicators at the Conference Board, Lynn Franco.
When consumer confidence rises, it generally carries the national housing market with it. Not surprisingly, when consumers feel optimistic about their employment opportunities and the larger economy, they are more likely to feel able to get a mortgage (thereby increasing the number of active potential buyers in the population), more likely to consider buying a home (the Conference Board said that three percent more Americans now believe it is a good time to buy than did last quarter), and feel less worry about the future (making it more likely they will put down roots).
“Stronger business and consumer morale typically lead to even more hiring and spending, which in turn encourages more households to make big decisions, like buying a home,” observed National Association of Realtors (NAR) chief economist Lawrence Yun. Karen Highland, of Frederick Real Estate Online, called the process of increased consumer confidence causing first-time buyers to be positive about job stability and “put that confidence into action” a “trickle-up effect” in real estate “because the first-time buyer often frees up the move-up buyer, and on and on.”
While national numbers like these are useful as indicators, real estate investors must also evaluate consumer confidence on a local level to determine whether Highland’s “trickle-up effect” is, well, in effect in their target market. Local gauges can help with this, as can tracking local employment trends and evaluating the status of local employers and local economic growth.