The Consumer Confidence Index is rising, a potentially double-edged sword for residents of Marin County and for Americans in general.
According to The Conference Board, economic confidence is as high as it’s been since August 2007 — 4 months before the start of the recession. Americans are optimistic again.
Confidence matters to the economy because as confidence increases, in theory, consumer spending follows. Consumer spending accounts for 70 percent of the U.S. economy, which is why Wall Street is responsive to confidence data.
When consumer confidence is rising, households start to make big-ticket purchases they may have otherwise put off indefinitely. Maybe it’s a replacing old appliances; or, trading in an old automobiles; or, splurging on a vacation.
Rising confidence can also spur real estate sales. When confidence is rising, a growing family that chose to “make do” in their 3-bedroom, 1.5-bathroom starter home may opt to move-up to a 4-bedroom, 3-bath instead at a slightly higher monthly carrying cost. And there are families in every city in every state making those same decisions.
As a result, the housing market gets a boost — especially in the mid-to-upper price ranges. Values rise on higher demand for homes. The downside is that growing confidence tends to push conforming and FHA mortgage rates up. This is because an expanding economy draws investment dollars away from bonds and into stocks — including mortgage bonds.
The reduced demand for mortgage-backed bonds leads bond prices to fall and mortgage rates to rise. Sometimes by a little, sometimes by lot.
The consumer confidence may have less of an impact on Marin County home prices as our market was behind the rest of the country to fall.