Consumer Confidence: A Factor in Housing Market Performance

The Relationship Between Consumer Confidence and Housing Market Performance

Consumer confidence is a significant factor in determining housing market performance. The current levels of consumer confidence are at an all-time low, which could have a significant impact on the housing market. Experts say that there is a perceived relationship between consumer confidence and real estate sales activity, but there is limited research to support this correlation.

The current levels of consumer confidence are at an all-time low, with the Conference Board reporting a 7.2-point drop in consumer confidence to 92.9 at the end of March.
The Expectations Index, which measures consumers’ short-term outlook for income, business, and labor market conditions, dropped to its lowest level in 12 years, signaling a recession.
Optimism levels related to future employment prospects, future business conditions, and future income are also on the decline.

The Impact of Consumer Confidence on Real Estate Purchasing Behaviors

Consumer confidence has a significant impact on real estate purchasing behaviors. When consumers are confident in the economy and their financial situation, they are more likely to purchase a home. However, when consumer confidence is low, it can signal changes in household spending patterns.

According to Selma Hepp, chief economist and SVP at CoreLogic, people are more likely to purchase a home when they are optimistic about the economy and their financial situation.
Greg Willett, chief economist for LeaseLock, suggests that uncertainty tends to make people put off major financial or lifestyle decisions, which can lead to fewer home-buying prospects.
Fatima Malik, global real estate advisor with Engel & Völkers Beverly Hills, notes that consumer confidence influences timing, but it doesn’t eliminate demand.

Economic Disruption and Housing Market Performance

Economic disruption can have a significant impact on housing market performance. However, it’s not always a dam for purchasing activity. Moreso, it delays decisions rather than pauses them.

During early COVID and in late 2022, confidence levels were low, but people still moved as a result of life events like career shifts, family needs, and retirement.
Malik says that consumers are coming back to the table with new strategies, not fear, as pending sales are up 2% nationally and the Case-Shiller Index shows 4.1% annual price growth.
Harris notes that the premium price markets are less susceptible to market impact, with buyers coming back to the table with new strategies.

Regional Trends and Market Psychology

Regional trends and market psychology play a significant role in housing market performance. Market psychology can vary wildly from the rest of the country, and it’s essential to consider local market trends when attempting to identify trends.

Scott Harris, founder and associate broker of real estate firm Magnetic, notes that New York City buyer sentiment may vary wildly from the rest of the country, especially when 60%-plus deals are all cash.
Malik says that buyers are coming back to the table with new strategies, not fear, in areas like Los Angeles, with pending sales up 2% nationally and the Case-Shiller Index showing 4.1% annual price growth.

Confidence as a Supporting Player

Confidence is not a reliable indicator of housing market performance. There are more reliable levers to pull for a read on housing market activity, such as days on market, share of home sales that are over or under asking price, months’ supply, number of offers on a listing, home price gains, and mortgage rates.

Hepp points to days on market, share of home sales that are over or under asking price, months’ supply, number of offers on a listing, home price gains, and mortgage rates as the more traditional metrics to watch.
Johnson suggests that ongoing inventory issues across the country have a greater influence on the housing market than consumer sentiment.

Business Adaptability Best Practices

If consumer sentiment is low, agents and brokers can get ahead of business impact by implementing future-proof strategies.

Harris suggests that agents should dial back the day-to-day noise for clients and help them focus on identifying what’s most important.
Hepp suggests that agents should educate clients about specific trends in their locations.
Johnson suggests that expanding beyond residential real estate sales may be the key to navigating volatility, by adding property management to their revenue streams.

Metrics to Watch	Days on market	Share of home sales that are over or under asking price	Months’ supply	Number of offers on a listing	Home price gains	Mortgage rates
Why	Days on market can indicate market activity	Share of home sales that are over or under asking price can indicate market conditions	Months’ supply can indicate inventory levels	Number of offers on a listing can indicate buyer demand	Home price gains can indicate market appreciation	Mortgage rates can indicate economic conditions

“Consumer confidence is not a reliable indicator of housing market performance. There are more reliable levers to pull for a read on housing market activity.” – Ken Johnson, Ph.D.

Conclusion
The current levels of consumer confidence are at an all-time low, which could have a significant impact on the housing market. However, confidence is not a reliable indicator of housing market performance. There are more reliable levers to pull for a read on housing market activity. Agents and brokers can get ahead of business impact by implementing future-proof strategies, such as dialing back the day-to-day noise, educating clients about specific trends, and adding property management to their revenue streams. By considering regional trends, market psychology, and traditional metrics, agents and brokers can better navigate the current market conditions and provide more effective services to their clients.