Trashed Consumer Confidence = No Housing Recovery

It’s been a while since we posted an update of our interactive Consumer Confidence chart, and I thought in light of our series of big picture week posts last month it might be nice to see how people are feeling about the economy in general.

Since dropping below 25 in February 2009, the present situation index has spent 20 months below 30. Prior to this slump, the lowest the present situation index had ever been was 59.7 in September 2003, which was the last month of a 7-month trough.

Although the expectations index has risen to 65.4 from its February 2009 low of 27.3, the current level is still a far cry from the 1998-2007 average level of 95.7.

With consumers’ confidence about their current situation still treading water at historic lows, what is the rationale for people who believe a housing recovery is just around the corner?

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About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market. Tim also hosts the weekly improv comedy sci-fi podcast Dispatches from the Multiverse.

26 comments:

  1. 1
    ray pepper says:

    Consumer Confidence…Let me just say this. I Coach 2 girls basketball teams and p/t Coach a soccer team for my daughter. Over the last two years I have gotten to know the parents of these kids FAR MORE then I would even like to. So outside my normal social network of friends I got to closely know about 40 additional families.

    I’m here to tell you that I have NEVER…EVER….heard so much pessimism about what has happened to their finances, homes, jobs, quality of education, health care, unemployment, crime…………It just goes on and on. Over and over I get asked about short sales because so many “just want out.” These are people that still work and can pay for their home but the problem is the “payment is too high” or we are “horribly upside down” or “the property went vacant again” or “we cannot save anything” or……….

    Combine this weekly rhetoric to my Friday visits to the Trustee Sales and other Auctions in Nevada and Oregon it is my belief the darkest days are yet to come and the discussion of any form of a bottom is insanity. I contend THEY ARE ALL COMING BACK unless we have a monumental form of FED STIMULUS to keep owners in these homes and have the banks write down these negative principle balances. I don’t bet against the FED in doing this but meanwhile I watch it unravel day after day.

    People who advise others they should buy because prices are low and interests rates are historically good need to rethink their pitch. Consumers will NOT fall for it anymore. I see people who buy at Trustee Auctions and are stuck with their AUCTION homes that they already bought at 50% off. They cannot even get their investment back! Furthermore the flood of homes have not even hit the markets yet!!!!!!!!!!!!!!

    “Keep your powder dry Ray-the REAL GEMS will be popping in a couple years time” is what I get told by the BIG BOYS……. that have the REAL money…….. every month.

  2. 2
    Buford says:

    “what is the rationale for people who believe a housing recovery is just around the corner?”

    We live in an era of – say it enough times and it must be true.

  3. 3
    deejayoh says:

    With consumers’ confidence about their current situation still treading water at historic lows, what is the rationale for people who believe a housing recovery is just around the corner?

    Here’s how I look at it. The two peaks in consumer confidence were right before the 2000 stock market crash, and right before the 2007 recession. Wasn’t that great of an indicator then of how things would turn out, was it? Why would it be any better now?

    Regression to the mean will happen

  4. 4
    John says:

    The way things are going, it won’t surprise me when the government pays for everyone’s underwater mortgage. No more foreclosures! Problem solved!

  5. 5
    Julie Lyda says:

    Oh this is only the tip of the iceberg (think Titanic). Wait till they uncover that the same home was sold multiple times in the MBS’s and CDO’s. Why do you think they can’t find the “paper”.

    The losses will be in $trillions to pensions, governments and the little people.

    How is it that the banks are making record profits while the rest of the county sinks deeper into depression? The anwer: Follow the Money!

    AAA rated MBS’s were junk and Moody’s knew it and rated them AAA because they were financially rewarded.

    See: http://online.wsj.com/public/resources/documents/RatingAgenciespressrelease.pdf

    I love the line “I hope we are all rich and retired when this house of cards fails”.

    I’m serious. This is what the rating companies were discussing when they were rating the MBS’s and CDO’s.

    All the while the “ones in the know” were betting that they would fail because they knew they were loaded up with subprime mortgages.

    That’s the first fraud.
    The second is when they hoodwinked the consumer into buying into subprime loans while subprime loans are showing 80% fraudulent documentation perpretrated by the “loan originator”.

    The rush to foreclosure is an asset grab and to coverup the fraud in the original loan docs.

  6. 6
    Ross Jordan says:

    A bottom, by definition, is when things are at their lowest point, and that includes market participant’s psychology. In the psychology of bubble/bust, despair is the last step, after capitulation. I’d say we’re somewhere between capitulation and despair right now. There’s fewer and fewer people talking/dreaming/hoping about getting good deals in housing and people are starting to accept the reality that real estate doesn’t always win. So, I don’t think we’ll see a full recovery around the corner, but I think we’ll stop seeing losses by end of 2011.

  7. 7
    Dirty_Renter says:

    By deejayoh @ 3:

    Reversion to the mean

    One of my very favorite investment themes.
    That, and if an investor’s lips are moving or fingers are typing…they’re talking their book.

  8. 8
    LA Relo says:

    Maybe the lines should be relabeled:

    Green = media propaganda
    Blue = what people believe
    Red = reality

  9. 9
    deejayoh says:

    By Dirty_Renter @ 7:

    By deejayoh @ 3:

    Reversion to the mean

    One of my very favorite investment themes.
    That, and if an investor’s lips are moving or fingers are typing…they’re talking their book.

    Wait, did you type that? ;^)

  10. 10

    Beware of Car Owners’ “MPG Claims”

    They tell me 38 mpg on their brand, but when I rent it on vacation or read about it in Car and Driver, it’s always more like 28 mpg.

    Same with the economy, the MSM’s lipstick container has run dry on the economy’s pig lips…because denial is a great way [they think] to keep a ponzi scheme spend-thrift nation afloat; as applied to their money, not mine [mine is piling up in a safe and not going into bad real estate investments].

  11. 11

    Am I the only one the Tableau graph is not working for? It worked at first a few hours ago, but it hasn’t worked since.

  12. 12
    Lurker says:

    RE: deejayoh @ 3

    Crashes are usually unexpected so the consumer confidence index shouldn’t be a good indicator of that but take it with a grain of salt however you wish.

    I see more YOY negative numbers which in my opinion doesn’t bode well for future housing growth. Several more months of poor housing, foreclosure and unemployment data is not going to help the buyer’s psyche either. As long as things don’t look positive, people are going to sit on the fence for as long as they can.

  13. 13
    The Tim says:

    RE: Kary L. Krismer @ 11 – Seems to be working for me…

  14. 14
    Eastside Real Estate Agent says:

    First of all I disagree the way this graph is setup by default. Only going from January 2007 to Present. Jan, 2007 is around the time where we can all agree upon that the Real Estate “cracks” began to show. This default time frame however is such a narrow and pessimistic sample period of consumer confidence. If you slide the bar so graph reads from April of 1998 to Present. The overall Consumer Confidence Index average is much higher. This is a strong indicator that a rebound is right around the corner.

  15. 15
    Lurker says:

    I wish this went back further than ’98. I think it’s funny how when things were perceived as good, expectation numbers were much lower.

  16. 16
    David Losh says:

    RE: The Tim @ 13

    The tableau charts, and graphs load slow. Now it seems as though you have two loading at the same time. One, in an older post may load, and the second on the page might stall altogether. It’s happened to me.

  17. 17
    Herman says:

    By Lurker @ 15:

    I wish this went back further than ’98. I think it’s funny how when things were perceived as good, expectation numbers were much lower.

    Flipping back to 1998, it looks like Consumers are terrible at predicting the future. Their “confidence” and “expectations” do not seem to predict the future – they do not show a trend in advance of the current situation.

    Their expectations just seem to ride along near the middle trend line. In other words, whatever the Consumer says is happening now, he just expects things to “go back to normal” in the future.

  18. 18
    BillE says:

    If I really want to know what’s going on with consumer confidence, I’ll email the agent that was showing me houses in 2008. At that time she told me the bottom was in and prices were going back up. Right now, she should have her finger on the pulse of consumer sentiment at her waitress job.

  19. 19

    The graph is working again for me. Yesterday I tried to adjust the time period and it quit, both in FF and IE. Apparently a reboot was required.

    Anyway, the reason I wanted to adjust the time is I wanted to focus on post-Bush 43. Surprisingly flat during Obama’s reign.

  20. 20
    Ahau says:

    Tim–I suppose I look at this a little differently than you. It looks to me like home prices fell before consumer confidence really started to drop, and it may be that we won’t see an increase in consumer confidence until we see an increase in housing and other broad economic factors, primarily unemployment. What we’re seeing here is correlation, not causation. To be fair, you’re not arguing for causation, but I’d look to something other than a lagging indicator for my future predictions.

    Personally, I don’t think we’re headed for a recovery in the near term if you’re defining recovery as a return to pre-2007 prices or 5%+ annual increases. However, I’m also not in agreement with overall long term pessimism. I think this is going to be a tough winter with low sales volumes and some modest declines in sale prices, but unemployement has stabilized, stocks are rising, corporate revenue is increasing, and consumer confidence is low but has remained stable. Foreclosures and Short Sales are high, but that has been the case for a long time too.

    From the WSJ this morning:

    “Of the S&P 500 companies that have reported third-quarter earnings so far, nearly 75% of them beat estimates for operating earnings while 85% of them topped prior-year earnings, according to Howard Silverblatt, senior index analyst at Standard & Poor’s. In addition, nearly 68% have topped sales estimates with 80% beating last year’s sales.”

    Flame on, Bears.

  21. 21
    David S says:

    Overly confident consumers are stupid consumers.

    With the low confidence comes: less credit purchasing, more personal and corporate savings, debt elimination, cash becomes king.

    Low consumer confidence portrayed as a bad thing when it most certainly spawns restraint and responsibility with one’s cash? Baloney.

  22. 22
    AWhiteHorse says:

    Wow. I’m sending this page to my best friend. who is (was?) a broker…

  23. 23
    AWhiteHorse says:

    Where is the hidden inventory going to come from?

  24. 24
    mukoh says:

    Its a bit interesting to see at the same time some builders who I know just got back in the market getting multiple offers on any standing inventory.

  25. 25
    David Losh says:

    RE: mukoh @ 24

    There is a sucker born every minute. New construction is the very worst mistake a buyer can make.

  26. 26

    […] I have mentioned before, consumer confidence is tied pretty closely to residential real estate, and as long as confidence […]

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