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Consumer confidence is rebounding but will it save the housing market?

Abstract : Consumer confidence is a very potent indicator when it comes to predicting the health of the US housing market and the number of foreclosures will increase only if it fails, says Jeff Adams.

America is a place where consumer confidence, that fickle, ethereal almost, indicator of a market’s health, is closely linked to natural disasters and national crises.

Let’s look at 9/11 for example. Consumer confidence right across the US plummeted the day after the attacks and took more than eighteen months to recover, a period during which, much of the economy was driven through tourism and foreign income from Britain and Europe.

Hurricane Katrina had the same effect, though obviously, not quite to the same degree. Days after it had struck New Orleans and the surrounding area and the magnitude of the disaster became known it caused consumer confidence to plummet to new lows and it took months to recover (and this time there were no foreign tourists in sizeable numbers coming to help us with their money).

The foreclosure crisis hitting the US sub-prime sector of the market is having exactly the same effect. Across the US consumer confidence, at the beginning of the year, appeared to have taken a dip which only became more pronounced as the months rolled on and rumours if foreclosures turned into hard figures and public sob stories which were hard to refute and helped feed a certain sense of mass hysteria.

Why are we examining all this right now? Because, as the year is finally winding down and the dust begins to settle we have, again, a picking up of sorts as Christmas, a trading time that’s frightfully important to traders, banks, money institutions, companies and the global economy, begins to get under way.

The question here is if the number of foreclosures continues to rise will it dampen down the festive spirit and affect consumer confidence? Ok, as an expert in real estate and foreclosures I can say with a certain amount of confidence that this will really depends on two things, one factual and one not.

The factual thing is that consumer confidence will really depend on whether foreclosures rise and do not get sold off in which case lenders will panic, further clump down on credit during a very crucial trading period and that will, inevitably, affect the ability of consumers to buy anything from Christmas lights to foreclosed homes being sold at bargain prices.

The other thing it will depend on is entirely fictitious but totally real in its effects and it is the perception of what is happening as it is formed, shaped and fuelled by popular press stories and sensationalist journalism. If these stories continue to appear, particularly, at the wrong time, the impression they help form is just as real as the reality.

The result is that the market will then shrink as consumer confidence takes a tumble and foreclosures will increase indeed.