Consumers are confident, even as the stock market gyrates and shakes. Rising employment and a solid boost to housing equity for a majority of households are evidently more than sufficient to overcome the fall in the stock market.
Specifically, the consumer confidence index rose above the 100 mark in August for only the third time in the past 88 months. Both components of the confidence rose: about the present conditions (from 104 to 115) and about the future (from 82 to 92). That portends well for consumer decision regarding expensive and long-lasting purchases, such as buying a home.
The gain in the housing wealth over the past 12 months has been roughly $1 trillion and still rising. The median national home price rose 5.6 percent in July. Meanwhile, the stock market wealth plunged, resulting in a several trillion dollar loss. But this big wipe out is not having a direct impact on confidence. Even though about a half of Americans have some exposures to the stock market through mutual funds and retirement accounts, it is really the top 10 percent who have a meaningful amount of $100,000 or more invested in the stock market. Therefore, 90 percent of the population is not that caring about what’s happening to the stock market. All the while home values are rising for the vast majority of households.
Keep a tab on the consumer confidence index in the current raucous presidential election campaigns. When the index surpassed 100 then the incumbent party retained the White House. When the index fell below 100 then the opposition party won the Presidency. The only exception was President Obama’s re-election in 2012 when the consumer confidence index in the month before the election was only 73.
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.