For the first time since Winter, U.S. consumers feel better about the economy. To economists, this means consumer spending may rise. To U.S. homeowners and would-be home buyers, it means mortgage rates may rise.
Consumer Confidence Jumps 3 Points
According to The Conference Board, the Consumer Confidence Index rose 3.2 points to 65.9 in July as compared to last month’s reading of 62.7. The Index is based on a survey which asks respondents how they feel about the short- and long-term future of the U.S. economy.
In theory, rising consumer confidence leads to increased consumer spending which, in turn, leads to economic expansion. This is because consumer spending accounts for an estimated 70 percent of the U.S. economy.
For mortgage rate shoppers, rising consumer confidence can be detrimental. Mortgage rates tend to rise in an expanding economy as Wall Street moves money away from the relative safety of bonds and into the risk-chasing markets of stocks.
As bonds sell off, mortgage rates rise — a maxim which holds true for all mortgage loan types — FHA, conforming or otherwise.
Rising Confidence Leads Home Prices Higher?
Rising consumer confidence may have a secondary economic effect, too. Just like Wall Street’s institutional investors, an optimistic consumer is more likely to take on new risk than a pessimistic one.
In this way, rising consumer confidence may be linked to higher home sales.
Consider that last decade, the housing market and the economy were in decline. Renters who wanted to become homeowners could not. Homeowners who wanted to “move-up” could not. Real estate investors who wanted to build portfolios without cash could not.
As the economy has improved, though, opportunities have opened for all three types of buyers.
- Low downpayment programs first-time home buyer are readily available
- The market for HELOCs is opening back up for move-up buyers
- Real estate investors can use the Delayed Financing Program to leverage cash
Pent-up buyer demand is unleashing nationwide, which explains why the two most-cited home valuation metrics — FHFA Home Price Index and the Case-Shiller Index — both show strong home price growth nationwide.
For home buyers, rising consumer confidence means the best “deals” may be in the past.