Consumer confidence falls as housing markets plunge …

posted at 12:55 pm on May 31, 2011 by Ed Morrissey

This time, it’s the AP’s turn to use the U-word, at least in the headline.  Consumer confidence tumbled in April, not a surprising result for anyone paying attention to rising unemployment claims, rapidly rising gas prices, and the slowdown in durable-goods orders.  The only people apparently surprised by this are the economists:

The Conference Board’s Consumer Confidence Index fell to 60.8 from a revised 66 in April, a sign of the toll that high gas prices, a choppy job outlook and a moribund housing market are taking on people’s psyches. Economists had expected an increase to 67. It was the lowest reading since November.

“Consumers are considerably more apprehensive about future business and labor market conditions as well as their income prospects,” said Lynn Franco, director of The Conference Board Consumer Research Center. She said fears over inflation, which eased in April, picked up again in May.

The index, released Tuesday, is still far from the reading of 90 that indicates a healthy economy. It hasn’t approached that level since the recession began in December 2007.

Increased worry about income and jobs coupled with high prices are taking a toll on consumers, said Moody’s Chief Economist John Lonski.

They seriously expected an increase?  Durable goods orders dropped 3.6% in April in what should have been a gigantic clue of falling demand.  It would be one thing to be surprised by another reflection of falling demand if it came before the first, but it would only have been “unexpected” had consumer confidence increased while demand fell.

Why are consumers losing confidence?  One big reason might be the increased level of weekly initial unemployment claims seen since mid-April.  On Friday, the Department of Labor will announce May’s unemployment rate, and the indications thus far suggest that the US economy didn’t add many jobs.  On top of that, the valuation of the primary asset of most consumers keeps dropping:

Between March 2010 and March 2011, the market suffered its biggest year-over-year decline in 16 months. Property values in 20 cities fell to their lowest levels since 2003 with a 3.6 percent drop from March 2010 to March 2011, according to new figures from S&P/Case-Shiller.

The figure is slightly worse than 25 economists surveyed by Bloomberg expected. That group expected a 3.4 perccent drop with a range of 2.8 percent to 4.9 percent.

Nationally, prices sank 5.1 percent in the first quarter from the same time in 2010 and 4.2 percent from the previous three months. It was the biggest one-quarter decrease since the first three months of 2009.

For most people, this doesn’t feel like recovery.  It feels like a continuing recession, which is why consumers are acting like investors and wrapping their arms around their cash.  If this continues for much longer, the real surprise will belong to Barack Obama and the Democrats in the 2012 elections.  These are not “stay the course” figures, and the only real change is that hope is all-too-expectedly dissipating under Obamanomics.

Update: For non-homeowners, the news is also unexpectedly bad.  Get ready for inflation in the rental markets:

For all the attention given to almost $4-a-gallon gas, the biggest threat to containing U.S. inflation may be the shift away from homeownership, which is pushing up the cost of leases across the nation’s 38 million rented residences.

Shelter represents about 40 percent of the consumer price index excluding food and energy and accounted for almost one quarter of the 1.3 percentage point rise in April. That share has grown as falling home prices shake Americans’ confidence in housing as an investment.

Federal Reserve Chairman Ben S. Bernanke and his colleagues say they will hold interest rates at record lows for an “extended period,” based on an assessment that slack in the economy from 9 percent unemployment will help subdue core inflation and any threat of accelerating prices likely will be “transitory.” Not everyone agrees with that judgment.

“They should have looked at rents,” said Maury Harris, chief U.S. economist in New York at UBS Securities LLC, whose team at UBS was the most accurate inflation forecaster over 2009 and 2010, according to Bloomberg calculations. “They’re putting too much weight on the ‘slack is all that matters’ theory. It matters but, for heaven’s sake, it’s not all that matters.”

That could be long-term good news, however, as residential multi-unit construction could see a rebound if rental prices continue to accelerate.

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how long before the gov’t mandates no rent increases? it’s for the public good, after all!

search4truth on May 31, 2011 at 12:59 PM

Got an offer of full appraisal value on my homestead this morning…in this market, I am taking that. Lucked out, I guess. No brokers fees either.

All I have to say is “Whew!”

JetBoy on May 31, 2011 at 12:59 PM

Yet the ratio of corporate earnings to personal income is at an all time high.

Strange thing- but it seems jacking up taxes, regulation and political favoritism makes companies invest elsewhere, or not at all.

Chuck Schick on May 31, 2011 at 1:02 PM

I think we need a new set of economists.

rbj on May 31, 2011 at 1:02 PM

Peggy Joseph hardest hit.

pain train on May 31, 2011 at 1:02 PM

Glad to see Obama’s got the economy on the right track. Just a matter of time with his educational background, his previous experience, and his demonstrated expertise.

Oh, wait….

BuckeyeSam on May 31, 2011 at 1:02 PM

This recovery is going to slow and painful. Fifty-one percent of the American people voted these morons into power and 100% of the American people will suffer the consequences. 2012 can’t come soon enough.

MJZZZ on May 31, 2011 at 1:03 PM

JetBoy on May 31, 2011 at 12:59 PM

congrats JB

cmsinaz on May 31, 2011 at 1:05 PM

Why are consumers losing confidence?

Because our Communist Thug-in-Chief’s polices are working (as intended). Obama 2012: 4 more years of destruction

skanter on May 31, 2011 at 1:05 PM

I don’t care. Obama is awesome. /

RedRedRice on May 31, 2011 at 1:06 PM

Housing prices fell all across the country, but not in DC.

Who works for whom nowadays?

petefrt on May 31, 2011 at 1:07 PM

All I have to say is “Whew!”

JetBoy on May 31, 2011 at 12:59 PM

And yet, I could swear that there were some posters on here last week saying how you wouldn’t get anywhere close to that. Just shows that something is worth exactly what someone else is willing to pay for it. Congrats!

search4truth on May 31, 2011 at 1:07 PM

Watch… I’ll be living in the projects and then Peggy Joseph can have my house that I worked so hard to attain. My home that I put over $65k in equity will belong to Peggy Joseph and other Eric Holder’s peoples.

By design, folks. There is no other answer.

Key West Reader on May 31, 2011 at 1:07 PM

Now we know why no one in this bumbling administration is talking about anything tangible in the American economy – but worried about Palin’s bus, spiking the football and “granny’s Dead” medicare scare tactics….

Wise up Reps – the stuff writes itself, if you have a clue.

And in our backwards world today – MSM is not talking about it either; being this is the REAL impact due to 4 years of inept Dem leadership – with 2 including Obama’s tenure.

Odie1941 on May 31, 2011 at 1:07 PM

Every week is unexpected…because they have no idea what they are doing. The dems thought no matter what they did in office the good ole American people would work hard to bring the economy back. Looks like no one wanted to do that for them..

ps. I’m so glad I was able to sell my house 2 yrs ago!

tinkerthinker on May 31, 2011 at 1:08 PM

“Returning the Nation’s Wealth to it’s Rightful and Righteous Owners”!

/BHO’s plan.

Key West Reader on May 31, 2011 at 1:09 PM

I can hear the Democrats solution coming soon.

“Build more houses”.

fogw on May 31, 2011 at 1:10 PM

If economists we so good, they’d all be in the market from their yachts. They get paid to predict – will it get better or will it get worse? (50/50 is no big challenge)

When I was in the brokerage business and economist friend told me his secret -”Predict often!” He would say.

It’s almost like the weathermen watching their predictions of flurries crushed badly. Undaunted, as the snow begins the merely re-predict;flurries to a few inches,then that becomes, a half of foot or so, then the “or so” becomes, up to a possible 12-18 inches and so on.

Our favorite sport was the WSJ’s, Heard on the Street column where the experts would, without fail, predict that the market was going up, down, and nowhere, all in the same paragraph!

Predicting is for well paid experts -Believing them, however, is for fools.

Don L on May 31, 2011 at 1:10 PM

Oh goody – WH press conference to come – “expecting hard questions on housing/economy” – per Fox News.

I cant wait for the Carney Circus.

Odie1941 on May 31, 2011 at 1:10 PM

I think we need a new set of economists.

rbj on May 31, 2011 at 1:02 PM

Starting with putting a gag on the mouth of that idiot Paul Krugman! Every single thing he has sputtered about the economy in this country has either been wrong or an out and out lie! When it comes to All Things Financial, the man is completely useless!

pilamaye on May 31, 2011 at 1:12 PM

If economists we so good, they’d all be in the market from their yachts. They get paid to predict – will it get better or will it get worse? (50/50 is no big challenge)

When I was in the brokerage business and economist friend told me his secret -”Predict often!” He would say.

It’s almost like the weathermen watching their predictions of flurries crushed badly. Undaunted, as the snow begins the merely re-predict;flurries to a few inches,then that becomes, a half of foot or so, then the “or so” becomes, up to a possible 12-18 inches and so on.

Our favorite sport was the WSJ’s, Heard on the Street column where the experts would, without fail, predict that the market was going up, down, and nowhere, all in the same paragraph!

Predicting is for well paid experts -Believing them, however, is for fools.

Don L on May 31, 2011 at 1:10 PM

“Buy on rumor, sell on news”

Wall Street mantra, at least in my days there…

Odie1941 on May 31, 2011 at 1:12 PM

Got an offer of full appraisal value on my homestead this morning…in this market, I am taking that. Lucked out, I guess. No brokers fees either.

All I have to say is “Whew!”

JetBoy on May 31, 2011 at 12:59 PM

Good deal. I sold my house for my original asking price last summer; it even surprized the realtor. If you are selling what somebody wants to buy, it sells.

Vashta.Nerada on May 31, 2011 at 1:13 PM

I can hear the Democrats solution coming soon.

“Build more houses”.

fogw on May 31, 2011 at 1:10 PM

And then raise the taxes on them!

pilamaye on May 31, 2011 at 1:13 PM

LOL. Inflation in rental markets as there are 3 million empty houses in the country. Yea sure.

I’ve been hearing this nonsense for 3-4 years and it hasn’t happened.

Rents cannot be separated from housing prices. Rent is a factor of housing prices. Housing prices are a factor of rents. They’re the same thing just split differently.

Think of rent as the stock price of a house and the house value as the value of a company. The present value of a house is the value of a future stream of rent for the house, discounted at an interest rate. Just like the present value of a company is the future stream of profits discounted at an interest rate.

Inflation in rents with a simultaneous decrease in home prices is like saying IBM stock will rise but the value of IBM will fall. It is utter nonsense. This is propaganda being put out by the Fed and other interested parties (banks, home builders) to scare people into buying.

angryed on May 31, 2011 at 1:15 PM

My home, thankfully, is paid for and being in the mid-west, the housing market has been relatively stable. My brother in Las Vegas and brother in Victorville have been far less fortunate. The Vegas brother has lost over half the value of his home and has a foreclosed property next door to him. He is not a happy camper and not an Obama or Reid fan.

bopbottle on May 31, 2011 at 1:16 PM

There’s a “shift away from home ownership” every time economic disaster hits. Nothing is permanent — but government’s invariable effect is to distort markets by trying to make selected things so.

Less government. That’s the ticket.

J.E. Dyer on May 31, 2011 at 1:17 PM

All I have to say is “Whew!”

JetBoy on May 31, 2011 at 12:59 PM

And yet, I could swear that there were some posters on here last week saying how you wouldn’t get anywhere close to that. Just shows that something is worth exactly what someone else is willing to pay for it. Congrats!

search4truth on May 31, 2011 at 1:07 PM

A fool and his money are soon parted.

I sold my car this weekend. I got $700 more than it’s worth. Sometimes you get lucky. In the short run and at the micro level people often act irrationally. In the long run and at the macro level they don’t.

My buyer and JB’s buyer made short term bad decisions based on either emotion, lack of information or a combination of both. We both benefited from their irrational behavior.

angryed on May 31, 2011 at 1:19 PM

He is not a happy camper and not an Obama or Reid fan.

bopbottle on May 31, 2011 at 1:16 PM

That’s good to hear. But Obama had nothing to do with the bubble/burst in Las Vegas. That happened well before he took office. Reid was there and deserves some of the blame for not reining in Fannie/Freddie in the early 2000s.

angryed on May 31, 2011 at 1:21 PM

The two sellers of the condos I had been keeping an eye on must have missed the memo. They both increased the list price this past weekend. One up 5k and the other up 10k. Needless to say I’m out of there. Their orginal price was already above the sales price on the same type units from a year ago.

VikingGoneWild on May 31, 2011 at 1:30 PM

And yet over 50% of Americans think Obama is doing a great job….

albill on May 31, 2011 at 1:31 PM

JetBoy on May 31, 2011 at 12:59 PM

-
Congrats… Last year I had a Realtor come look around… He said basically I’d have to give away all my improvements because they don’t add to the appraised value (side and new storms… etc…), and that I would not get any traffic if I listed even $10,000 above that. “Expect a couple very low bids” was the takeaway line.
-
I don’t want to but I can wait, many can’t.
-

RalphyBoy on May 31, 2011 at 1:33 PM

This makes me wonder if we will see a headline like this after the GOP wins in 2012

“Obama Wins Reelection”

faraway on May 31, 2011 at 1:34 PM

That’s good to hear. But Obama had nothing to do with the bubble/burst in Las Vegas. That happened well before he took office. Reid was there and deserves some of the blame for not reining in Fannie/Freddie in the early 2000s.

angryed on May 31, 2011 at 1:21 PM

Actually BHO is not without blame either, since he was a US Senator at the time.

UltimateBob on May 31, 2011 at 1:39 PM

It’s almost like the weathermen watching their predictions of flurries crushed badly. Undaunted, as the snow begins the merely re-predict;flurries to a few inches,then that becomes, a half of foot or so, then the “or so” becomes, up to a possible 12-18 inches and so on.

-
Best snow hiking I ever did was one time when they started the bidding at 6-8in and it went to 20… NJ was in a state of emergency by the time we were back outta the woods… Didn’t know that until we went a few miles in white-out conditions and the radio reported it…
-
Same thing here… They will only report it if the everyone already knows it… Protect the mess-I-uh…
-

RalphyBoy on May 31, 2011 at 1:40 PM

-

I don’t want to but I can wait, many can’t.
-

RalphyBoy on May 31, 2011 at 1:33 PM

Yeah…stinks you can’t recoup the improvements. I did a lot of general work on the house last few years…re-did all the hardwood floors, paint inside and out, landscape, etc. I feel I got very lucky with the offer…my guardian angel helped…I don’t know…but whatever it is, even if, as angryed put it, the guy went overboard (I kinda doubt, he’s a builder and know full well what places are worth) I’m just glad it is what it is.

And so quick.

JetBoy on May 31, 2011 at 1:47 PM

Got an offer of full appraisal value on my homestead this morning…in this market, I am taking that. Lucked out, I guess. No brokers fees either.

All I have to say is “Whew!”

JetBoy on May 31, 2011 at 12:59 PM

congrats on the offer, but it would be wise to save that ‘whew’ for the moment you see the appraisal. it’s ulgy out there. 50% of purchase contract sale prices are not supported by the appraisal nationwide.

DrW on May 31, 2011 at 1:48 PM

The Anti-Dog-Eat-Dog Act and Directive 10-289 should put things right.

Everyone has to chip in their fair share.

For the greater good.

Good Lt on May 31, 2011 at 1:53 PM

That could be long-term good news, however, as residential multi-unit construction could see a rebound if rental prices continue to accelerate.

Think so, huh? Try getting a loan for a new apartment building or to renovate an old one.

rockmom on May 31, 2011 at 2:02 PM

“If this continues for much longer, the real surprise will belong to Barack Obama and the Democrats in the 2012 elections. These are not “stay the course” figures, and the only real change is that hope is all-too-expectedly dissipating under Obamanomics.”

“We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and if I am wrong … somebody
else can have my job. I want to see this country prosperous. I want to see people get a
job. I want to see people get enough to eat. We have never made good on our promises. …
I say after eight years of this Administration we have just as much unemployment as when
we started. … And an enormous debt to boot.”

FDR won three more presidential elections after his secretary of the treasury said these words.

burt on May 31, 2011 at 2:41 PM

Starting with putting a gag on the mouth of that idiot Paul Krugman! Every single thing he has sputtered about the economy in this country has either been wrong or an out and out lie! When it comes to All Things Financial, the man is completely useless!

pilamaye on May 31, 2011 at 1:12 PM

“But Krugman won an imitation Nobel Prize!”

/crr6

Del Dolemonte on May 31, 2011 at 3:27 PM

burt on May 31, 2011 at 2:41 PM

That was a diferent time, and we were a diferent people back then. Socialism was still considered “new” and most people hadn’t experienced it. Media capture by leftists was even more complete back then as all that existed was Newspapers and Radio.

Today we have the internet, Fox News, and a plethora of physical publications to obtain an alternate viewpoint from. Socialism has been tried in America and been found sorely wanting by the vast majority of her people, and we have a new resurgence of political involvement by conservatives via the Tea Party. Things are NOT the same as they once were, and people are no longer interested in the tired FDR-era explanations and tactics.

A new day is coming in America, a new dawn is breaking. We WILL shed the shackles of old Socialism and finally relegate it to the dustbin of history where it belongs. Our children and grandchildren will remember us as the generation that finally set America free from 100 years of Socialist oppression and subversion. We will win.

wearyman on May 31, 2011 at 3:32 PM

For most people, this doesn’t feel like recovery. It feels like a continuing recession

Because it -is-? Haved we actually had any recovery or have we been fed pure BS from Failbama and company?

If recovery actually happened, why did they fudge the numbers? GDP minus the government spending component has been pretty close to or below zero for 26 or 27 months.

Between 400k and 700k people a week have filed for unemployment since December of 2008.

Failbama the clueless has done absolutely nothing to fix the economy. Quite the opposite, in fact. His ceaseless attacks on the private sector are taking their toll.

This is not “unexpected,” since the idiot never held an actual job. He has no grasp of how the economy works. He only knows how he “feels” it should work.

As I have said in previous posts, our economy is in a slow agonizing death spiral.

dogsoldier on May 31, 2011 at 3:38 PM

Consumer confidence falls as housing markets plunge.

Consumer confidence unexpectedly falls as housing markets plunge fail to rise.

Corrections authorized by AP.

Dr. Charles G. Waugh on May 31, 2011 at 4:00 PM

And even with this dismal market, cities are not revaluing properties to reflect true market value – but are instead continuing to tax based on immoral and corrupt “values” based on the height of the bubble.

And the MSM shouts loudly about the injustice of it all…..NOT.

KMC1 on May 31, 2011 at 4:23 PM