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LACK OF CONSUMER CONFIDENCE Key Culprit Stalling U.S. Housing Turnaround!

"FEAR!  It's a scary thing!" 

This sounds like a quote from Baseball Great Yogi Berra, but its true source is unknown.   But fear might be playing a key part preventing quick rebound in the housing market.

Which factors keep the U.S. and Chicago Housing Markets from beginning to rebound?  Fear over rising unemployment.  Reduced confidence in the U.S. Economy.  And the perception - generally true - that mortgage money is available, but often extremely tight for all but the most credit-qualified borrowers.

In their latest survey of Consumer Confidence, research firm The Conference Board surveyed 5,000 households to calculate a Consumer Confidence Index of 38 in December, down from 44.7 in November, and 90.6 one year ago.

At the same time, the Standard & Poors/Case-Shiller Home Price Index fell 2.2% in October (the latest month for which data is available) versus September, and 18% from October, 2007.  The Chicago Metro Case-Shiller Index was not quite as bad, showing a 10.8% decline year-over-year, and a 1.6% drop in October versus September, 2008.  (See the Wall Street Journal Developments Blog today for a summary of the latest National Case-Shiller Index Numbers).

Nationally, three U.S. Metro Areas - San Francisco, Las Vegas, and Phoenix - showed index declines greater than 30% year over year.  Of 20 Metro Areas tracked in the Index, Charlotte NC (minus 3%) and Dallas TX (minus 4.4%) had the lowest declines of all the market areas analyzed.

Regarding their outlook on employment prospects, 42% of respondents to the Conference Board Consumer Confidence Survey indicated jobs were "hard to get" in December, compared to 37.1% in November.  Those responding that jobs were "plentiful" dropped to 6.2% this month, versus 8.7% one month ago.

Interest rate and capital injection programs by the Bush Administration, with the aim of lowering mortgage interest rates, have succeeded to some degree.  as many lenders can now offer 30-Year Fixed Loans of 5.50% or less to their best, most-credit-qualified customers.  But for those with middling credit credentials, and more modest down payments, interest rates have not tumbled as dramatically.

As foreclosures continue to rise, lenders, still licking their wounds from billions of dollars in mortgage defaults over the past year, have steadily risen loan standards for new and re-finance borrowers.  The result?  Less total mortgage money being given out to the general homebuyer market.  This keeps homes-for-sale inventories high, and pushes prices down further on most homes.

According to David Blitzer, Chairman of the Standard & Poors Index Committee, and quoted in Sudeep Reddy's article today in the Wall Street Journal, "We need a lot more people in the market as much as anything else.  The lending standards have to be such that a reasonable number of people can get loans."

Not all is bleak longer term, however.  In aggregate, home prices, according to the Case-Shiller Index, have increased 58% since January, 2000, with New York City showing the greatest index increase - 90% - during this period.  On the other hand, the Metro Detroit price index fell 14% between January, 2000 and October, 2008.

Will the Obama Administration take steps to improve consumer confidence, reduce growing unemployment fears, slow home foreclosures, and increase the general availability of mortgage money?  We'll have to wait and see!

See our post today @ BlogChicagoHomes.com.

Happy New Year - Welcome, finally - 2009!


Comment balloon 1 commentDean Moss • December 30 2008 10:16PM
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