This Week with J. Mark Nickell & Co.
We begin with an article summarizing sizeable increases in home prices reported by the S&P/Case-Shiller Index. Next, we summarize upbeat news in the Conference Board’s most recent Consumer Confidence Index®. We temper the good news with a report on the state of household finances following the recession. Finally, we present an Issue Brief that explains why housing is so important to the economy as a whole.
Home Prices in U.S. Rise by Most Since 2006 in March. Last week it was reported that home prices increased 10.9 percent from March 2012, the biggest 12-month gain since April 2006, according to the S&P/Case-Shiller Index of home prices. The Index is the leading measure for the US residential housing market, tracking changes in the value of residential real estate both nationally as well as in 20 metropolitan regions. “Property values may keep climbing as cheaper borrowing costs and gains in confidence lure buyers while the number of houses on the market remains near the lowest level in a decade.”
The Conference Board Consumer Confidence Index® Improves in May. The Conference Board, an independent research association working in the public interest, reported consumer confidence increased in May after having improved in April. “Consumer Confidence posted another gain this month and is now at a five-year high. Consumers’ assessment of current business and labor market conditions was more positive and they were considered more upbeat about future economic and job prospects. Back-to-back monthly gains suggest that consumer confidence is on the mend and may be regaining the traction it lost due to the fiscal cliff, payroll-tax hike, and sequester.”
Americans have rebuilt less than half their wealth lost to the recession, study says. Despite the good news on house prices and consumer confidence, households have recovered less than half of the wealth they lost during the recession, according to an analysis by the Federal Reserve Bank of St. Louis’ Center for Household Financial Stability. This means consumers don’t have enough spending power to support a strong economic recovery, the report concludes.
A Strong Housing Market is Critical to Our Recovery. Why is housing so important to economic recovery? This Issue Brief focuses on six key areas linked to housing and cites separate studies of particular issues. Two points are worth emphasizing. “Consumer spending will not come back until housing recovers.” High-debt households and those with underwater mortgages—those who owe more on their house than their house is worth—chills the demand in home-related industries (think Home Depot and Lowe’s). In addition, “lack of home equity constrains small-business formation and investment. Roughly one in four small business owners use home equity as a source of capital or collateral.” In my view, this latter point has not received sufficient press or policy attention; it explains in part why this recovery has been a “jobless recovery.” In summary, a strong housing market is a key component of a strong economic recovery.
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J. Mark Nickell & Co.
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