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| More rates and news from Housing Market May Get Psychological Boost By Early 2007(It is amazing when you consider how many financial moves and decisions are based upon people’s attitudes, or confidence levels, in the market industries.)
The Federal Reserve Bank, which sets the mortgage rates, determines several factors about the economy including consumer confidence in a variety of related markets, before deciding what the new rate will be.
Staying with that theme, the U.S. housing market may get a lift in the next coming months as confidence is currently low but is expected to rise.
The article, “News Good For Housing, Bad For Stocks,” written by Blanche Evans and published December 1, 2006 in Realty Times, explains how psychological factors have a great influence in multi-million dollar trades and industries.
The slowing economy has been recently blamed on the slowing housing market but it is apparent that consumers are watching other economic factors prior to getting their feet wet with a new mortgage.
“Consumer confidence in the strength of the economy is down, according to the Conference Board, a private economic research group which indexes consumer confidence. The index fell to 102.9 in November from a revised 105.1 in October.”
This is mostly noticeable from the fact that consumer spending is way down, as Wal-Mart reported its worst opening holiday weekend in 10 years.
According to Evans, who is the editor of Realty Times, this is largely significant because consumer spending represents about 70 percent of all economic activity in the U.S. This is also creating worry that spending will continue to decrease into and through 2007.
“The good news is inflation is ‘better behaved of late,’ according to Ben Bernanke, chief of the Federal Reserve. Accordingly, interest rates have dropped, pushing mortgage interest rates at merely a quarter percentage rate higher than they were a year ago at this time, in 40-year-low territory. This has encouraged a modest gain in housing for the month of October.”
However, year-over-year housing sales are still way down about 11.5 percent, which begs the question, why? All other psychological factors show that consumer confidence should be supporting a growing housing market.
“Unemployment is down (4.6 percent) and wages are up. Interest rates are down. And housing prices are down -- the median price for a home in October was $221,000, a decline of 3.5 percent from a year ago -- the biggest year-over-year price decline on record and the third month in a row that home prices have fallen.”
So then perhaps it is psychological factors that are responsible for the slowing market. The housing boom (2000 to 2005) was so drastic that it scared many people away from the market. And now that prices and sales are falling, buyers want to wait for them to drop farther and investors and sellers are just plain scared because no one knows what to expect.
“‘While it appears that home sales have stabilized over the past three months, it's too soon to say whether or not the market has bottomed out,’ said California Association of Realtors President Colleen Badagliacco. ‘We do expect smaller year-over-year declines in home sales for the remainder of the year.’”
Once the housing market begins to pick back up (it always does), consumer confidence will follow along with it.
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