Home Sales Dampened by Declining Consumer Confidence

According to ""Freddie Mac's"":http://www.freddiemac.com latest market outlook, over the first four months of 2011, sales of existing homes are up 5 percent from the pace of 2010 -- in line with the GSE's earlier projections of a 5 percent annual increase in existing-home sales this year.
[IMAGE] Regardless, Freddie's economists say going forward, their forecast for sales growth remains dampened by declining consumer confidence and economic uncertainty. They point out that news of still-falling home prices has potential homebuyers waiting for a clear signal that home values have firmed.

Freddie Mac's chief economist, Frank Nothaft, expects a slow, but discernible uptick in market performance in the months ahead.

""While parts of the housing industry remain weak…homes sales are above last year's pace,"" Nothaft said, adding that the rental market has clearly strengthened.

""Look for a gradual but substantive improvement in housing activity in the coming year,"" he said.

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The McLean, Virginia-based GSE says homebuyer affordability remains very high, driven by the twin forces of low financing costs and a buyer’s market.

Mortgage interest rates have moved lower for most of the spring, with fixed-rate loans just slightly above the half-century nadir attained last fall, and initial interest rates on adjustable-rate mortgages are at or near record lows, according to Freddie’s weekly assessments.

Likewise, Nothaft says, U.S. house price indexes moved lower during the first quarter, helping set the stage for a high-degree of purchasing power for home seekers.

But even this backdrop isn’t moving properties, and Nothaft says part of the reason is because “consumers are currently a worried group.”

He points to the latest Conference Board measure of consumer confidence, which declined in May, in part reflecting concerns over waning job creation and rising energy costs. Consumers who feel heightened uncertainty over their economic well-being, combined with the volatility still evident in home prices, are more likely to be cautious when contemplating a home purchase, Nothaft says.

On the labor front, Nothaft notes that net job creation in May of 54,000 was less than one-third the average pace for the first four months of 2011, but he expects reduced employment gains to likely be reversed in the coming months.

“The economic soft patch is expected to be temporary, with more robust economic growth returning during the second half of the year,” Nothaft said.