Consumer confidence in April 2008 has decreased by -5.46% from last month, and is down -41.39% from a year earlier. Consumer confidence is a barometer that measures the attitudes and feelings towards the outlook of the economy. In general when this index rises it has a positive effect on the economy. As people become more confident about the economy, they begin to relax their worries and spend more money. All things equal, as people spend more the economy grows. Consumption drives demand and demand drives consumption.
To put this into perspective domestic demand makes up roughly two thirds the U.S. economy. If people don’t spend the economy slows. If people spend, it increases demand and fuels the economy. How does this relate to real estate? The largest purchase an average person buys in his or her lifetime is their home. A strong economy will fuel the demand for homes.
April pending homes sales increased month over month by 6.27%. Pending home sales can serve as a good leading indicator on the price of homes. As the number of pending sales increase, again all things being equal, the effect on home prices should be upward. However, it may not be that simple. Buyers that have been on the sidelines for the past 6-12 months may determine now as the opportune time to buy. Sellers offer to pay for closing costs, and offer more concessions after continuing to drop their list price gives the buyer a lot of incentive.
Buyers get more bang for the buck as most of the homes that sell have improvements or have been remodeled – a seemingly necessary component to sell in this tough environment. Concessions and improvements do not reflect in the pending home sales, but must be taken into consideration when evaluating the real estate market.
On the balance, it is still early in the game to determine where the market will go. What effect will the rising foreclosures have on the market and when will it curtail, one can’t predict. More time for the market to settle will allow for a better assessment.