Consumer confidence is a funny thing. As adults, we understand that wanting something doesn’t necessarily make it so (for example, no matter how much we want our favorite dessert to have zero calories, it doesn’t); however, with consumer confidence it’s the opposite. When enough people believe something, it becomes true. It’s not actually the belief, but rather the actions we all take as a result of our beliefs.
If we are confident that the economy is improving, that our jobs are secure, that good times are ahead; we’re more likely to spend more money. Spending primes the pump and keeps the economy moving, thus reinforcing our positive feelings about how things are going. If we are concerned that the economy is contracting, that our jobs are in jeopardy, that a decline is coming; we’re more likely to hold onto our money. Less money in the economy will slow growth and make all those negative predictions come true.
According to a recent HousingWire blog, a national survey indicates that 52 percent of Americans now believe it would be easy for them to get a home loan (as compared to 45 percent, who do not). This confidence is likely to bolster the ongoing housing recovery.
Even with poor job numbers in December and January, consumer attitudes toward the economy overall also improved, although people with a positive view are still in the minority (at about 40 percent).
The share of people who expect their personal financial situation to improve in the next year increased to 44 percent, continuing an upward trend since November 2013.
Other notable findings from the survey include:
- Approximately 88 percent of people think home prices will either stay the same or go up in the next 12 months.
- Only 55 percent of respondents say mortgage rates will go up in the next 12 months, and this number is on the decline.
- About two-thirds of people think it is a good time to buy a house, which is down a couple percentage points from last month.
- Those who say it is a good time to sell a house increased 5 percentage points from last month to 38 percent.
So, what does this all mean? Well, I think interest rates will continue to rise slowly. I also think real estate values will continue to rise. Even if we only see a 2 percent jump in prices this year, now is still a good time to buy because real estate is a leveraged purchase.
Let’s break it down. If you put 20 percent down on a $100,000 home, you’d pay $20,000. At the end of the year, that same home is now worth $102,000. It’s like money in the bank. If you add that $2,000 of value to the $20,000 you invested, you now have $22,000 of equity. The additional equity represents 10 percent of your original investment ($2,000 is 10 percent of $20,000), so you’ve increased your equity by 10 percent, even though values only went up 2 percent.
That’s all for this week. One of the things I like to do in my column is highlight local charity events. If you have one coming up, let me know and I’ll try to share the information here.
Next time I’ll write about all the things to think about before a move. If there’s something you would like me to write about or if you have questions about real estate or property management, feel free to contact me at rselzer@selzerrealty.com or visit our website at www.realtyworldselzer.com. If you make a suggestion I use, I’ll send you a $5.00 gift card to Schat’s Bakery & Café. If you’d like to read previous articles, visit my blog at www.richardselzer.com. Dick Selzer is a real estate broker who has been in the business for more than 35 years.
