March Consumer Confidence and January Home Prices

KEY DATA: Confidence: +9.5 points/ National Home Prices (Monthly): 0.6%; Home Prices (Over-Year): 5.9%

IN A NUTSHELL: “I guess people think that chaos in Washington is good as consumer confidence is soaring.”

WHAT IT MEANS: The politicians in Washington may have made a fine mess of health care reform, but that didn’t seem to bother too many people, at least not in the latest survey of confidence. Or, maybe people really didn’t like the reforms and they were happy they weren’t passed. Or, maybe the survey was done too early to capture the impact of the failure to repeal and replace Obamacare. Who knows, but the latest report on household attitudes by the Conference Board was incredibly strong. The Consumer Confidence Index hit its highest level since December 2000. Forget the housing bubble, things are even better now. Every component was up solidly as people thought that current conditions were a lot better, jobs were more available and they were easier to get. The future looks brighter as well and respondents are hopeful their incomes will rise.

The national S&P CoreLogic Case-Shiller Home Price Index rose solidly in January and over the year as well. The gains are accelerating and given the paucity of supply, they should continue to do so even as mortgage rates increase. Looking across the nation, only Cleveland posted a decline in January, and that was minimal. Over the year, the increases ranged from a low of 3.2% in New York to 11.3% in Seattle. Of the twenty large metro areas shown, twelve had year-over-year gains that were faster this January than a year ago. In other words, prices are rising, they are rising faster and they are doing so across the nation.

MARKETS AND FED POLICY IMPLICATIONS: “Happy days are here again, the skies above are clear again, so let’s sing a song of cheer again, happy days are here again.” I just don’t get this confidence report. Okay, maybe not as we need to see what people think now that the AHCA has gone down in flames. Economic growth looks like it will once again be lackluster, in the 1% to at most 2% range. Yes, the last two job numbers were strong, but with labor shortages growing, it is hard to believe we can sustain gains above 200,000 (the next report is April 7th). So, what is making people so happy? Got me, especially since about a third of the nation think we are on the right track, a third think Washington is a disaster and the final third are flipping coins. But at least we can say that home prices are rising. That is good because higher values are reducing the number of people who cannot sell because they don’t have enough equity. I don’t worry about first time home buyers and will not until the “churn” in the market, which comes from owners selling their current units and then buying different ones, returns to a normal pace. Absent that, supply will be limited and prices will rise, but the market will not be normal. As for investors, these reports hold out hope that consumer spending will prop up the economy until the government decides whether it is going to give us more money to spend and will spend more money itself. The Republican leadership is hoping to get a tax reform bill done by August. Given the CBO is likely to show that as usual, the tax cuts will explode the deficit, it should be interesting to see how the politics play out on that bill. And those numbers might not even include money for infrastructure spending. Will Rogers said he didn’t belong to any organized political party, he was a Democrat. I wonder if Republicans will start behaving like Democrats this year. And can Democrats keep their discipline and start behaving like Republicans? It just may turn out that 2017 is even wilder than 2016.