A good-paying job today but an anxiety about a job cut tomorrow does not inspire confidence. Good thing that the job market has consistently been improving. No surprise then that more Americans are expressing a greater confidence about the U.S. economy. Confidence is particularly important for a major purchase like buying a home or a car since it is a longer term commitment and longer term financial obligation.
In June the consumer confidence index rose to 101.4 from 94 readings in the two prior months. The above 100 reading signifies a majority of Americans expressing positive views. This is only the 3rd month where the reading topped above 100 since early 2007. More jobs are helping of course. In addition a very high stock market valuation is no doubt contributing to the gains as well. But the rising home values may be having an even a bigger impact. About a half of American households have some amount invested in the stock market. However, only about a 10 percent of families are said to have a “meaningful” investment in the stock market of $100,000 or more. Therefore the rise in the stock market only helps the top few.
By contrast, 74 million households are homeowners while 42 million are renters. And home values have risen by 27 percent over the past 3 years, equating to about $48,000 in housing equity for a typical homeowner over this period. A solid gain for a solid majority of Americans.
Confidence has already helped auto sales back to normal. Home sales are rising but still underperforming. That means there is plenty of a stored-up demand that is looking to come out and, hence, a greater potential for home sales growth in the near future.
As an aside, Germany at the moment seems to hold the fate of Greece. That was not always the case. Athens and the rest of Greece had been the supreme model of democracy and good economy from the early classical times. Greeks labeled the Germanic tribes as the “barbarians”. After several centuries came Frederick the Great in what is now Berlin. He welcomed the hard working Protestant immigrants who had been expelled from Catholic Austria. He liked their industry and thrift but insisted one major change of the new immigrants: get rid of the Calvinistic predestination gloom. It was from this time in the mid-18thcentury that Germany started to show it could do well economically. Suppress gloom and bring on confidence.
Lawrence Yun is Chief Economist and Senior Vice President of Research at NAR. He directs research activity for the association and regularly provides commentary on real estate market trends for its 1 million REALTOR® members.