Consumer Confidence and Real Estate Market

The health of the housing market has long been tied to other key economic indicators – everything from consumer confidence to the stock market to unemployment rates and hiring trends. For instance, the direction of the Dow is rarely in opposition to Bay Area real estate activity. Local economists and Realtors alike have often noted that the valuation trend lines of the NASDAQ and Silicon Valley home prices typically have a significant correlation. The chart on the left shows the strong link between Consumer Confidence and Home Sales in the US.

Last week, the Conference Board announced that its consumer confidence index rose in April to the highest level in more than a year and a half. The rise in the index was considerably higher than economists had expected. Although the University of Michigan ’s consumer sentiment index took a small step back in April, it’s still hovering at levels not seen since early 2008. Similarly, the financial markets continue to march higher as growing evidence appears that the nation’s economy is gradually finding its footing. The Dow Jones Industrial Average is up 7 percent year to date and a whopping 70 percent since its March 9, 2009 low.

One last headline of interest: The Federal Reserve last week upgraded its economic outlook amid a better-than-expected recovery, saying the beleaguered labor market is beginning to improve. But the Fed voted to keep interest rates at historically low levels and signaled that wouldn't change anytime soon. Low mortgage rates, coupled with the April 30 deadline for the homebuyer tax credit, have helped to fuel strong home sales in many of our markets.

All of this is encouraging, but it’s not to say that we’re completely out of the woods. The jobless rate is still extremely high in California and across the country. A new wave of foreclosures could hit the housing market in the months ahead. But one has to be at least cautiously optimistic by these economic trends, which are so vital for the health and well-being of our housing market. One of the most important trends to follow is our Bay Area Month’s Supply of Inventory. It continues to drop at all price points, from less than 2 months at the entry level, to between 10 and 18 months in some of our Luxury markets.

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