Consumer morale increases despite drop in housing prices
Despite record numbers of bankruptcies and foreclosures and a continuing decline in housing prices throughout the country, a report released this week shows that American consumer confidence has increased to its highest reported level in eight months. Economic analysts are pleased with this development, citing improvements in the job and stock markets and general economic growth for the increase in optimism.
According to industry group The Conference Board, the organization’s monthly index of consumer confidence rose to 60.6 this month, up from December’s 53.3 and far above the projected level of 54.3. While the group is not completely sure of the reasoning behind the jumps, economists are theorizing that stock market gains and an increase in strength in the job market are main reasons for the added consumer confidence, according to economist Ian Shepherdson. “The recovery in stock prices and the beginnings of an improvement in the labor market are making people feel better about the economy,” he said.
The increased optimism comes just as it is announced that the housing market is continuing to tumble. According to a recently released report, the average price of single-family homes throughout the country fell for a fifth straight month in November, with predictions that they will fall even further. In the S&P/Case-Shiller composite index of 20 U.S. metropolitan areas, home values decreased by 0.5 percent from October to November and by 1.6 percent from November of 2009 to the same month in 2010.
Because of the large number of homes on the market, which is expected to increase as banks resume foreclosures in the coming months, it is unlikely that the housing market will improve anytime soon, says economist Yelena Shulyatyeva. “Given a pipeline of distressed properties that is at least two years of supply, the downward pressure on prices will be with us through 2011,” she said, “even if we see some improvement in housing demand.”
Source: Reuters, “Consumer morale at eight-month high“, Lucia Mutikani, 25 January 2011