Consumer confidence is at record highs, as growing numbers of consumers believe the roaring 2020’s recovery is here to stay. And it’s also sending home price increases to record highs. But this isn't another housing bubble. Too few homes are being built rather than too many, as builders try to catch up to the decades-long housing shortage, which could take another decade.
“Consumer confidence increased in June and is currently at its highest level since the onset of the pandemic’s first surge in March 2020,” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. “Consumers’ assessment of current conditions improved again, suggesting economic growth has strengthened further in Q2. Consumers’ short-term optimism rebounded, buoyed by expectations that business conditions and their own financial prospects will continue improving in the months ahead.“
The Case-Shiller home price index increased 14.6 percent in April, as it runs a 3-month average for same-home sale prices. This is that best of all worlds with demand so high. Current interest rates are below the inflation rate, so mortgages held longer term really have zero or negative yields, which means actual inflation shows up in housing prices.
“Phoenix, San Diego, and Seattle reported the highest year-over-year gains among the 20 cities in April,” said Case-Shiller. “Phoenix led the way with a 22.3% year-over-year price increase, followed by San Diego with a21.6% increase and Seattle with a 20.2% increase. All 20 cities reported higher price increases in the year ending April 2021versus the year ending March 2021.”
“In fact, the proportion of consumers planning to purchase homes, automobiles, and major appliances all rose—a sign that consumer spending will continue to support economic growth in the short-term. Vacation intentions also rose, reflecting a continued increase in spending on services,” said the Conference Board.
Consumers’ assessment of the labor market also improved. The Conference Board graph shows that jobs plentiful minus jobs hard to get blue line is soaring, with 54.4 percent of consumers said jobs are “plentiful”, up from 48.5 percent, and 10.9 percent of consumers claimed jobs are “hard to get”, down from 11.6 percent.
This is no wonder, as economists are predicting 9-10 percent GDP growth in Q2, and maybe six percent plus for all of 2021, before returning to a more normal growth pattern.
The American Rescue Plan has inserted $1.9 trillion into the U.S. economy, and Repubs and Democrats have agreed on an additional $1 trillion for infrastructure and other much needed physical improvements that will create more high-paying jobs.
So why shouldn’t consumers be this optimistic for awhile?
Harlan Green © 2021
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