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Housing’s role in consumer confidence and the K-shaped recovery

(ECONOMY) Why is there such a strong divergence in consumer confidence right now, and why is real estate a primary factor?

consumer confidence

Consumer confidence is currently “average.” This means that an equal number of people feel positively about the market as feel negatively.

Why the divergence? Is it the pulse of political sentiment, or is something more complex at play here?

National Association of Realtors (NAR) Chief Economist, Dr. Lawrence Yun stated plainly at today’s 2020 NAR Real Estate Forecast Summit, “housing wealth.”

Dr. Yun reports that in the past year, housing wealth (home equity) has gone up an average of $24,000.

Aside from this surge in housing wealth, homeowners are typically invested in the stock market (either directly, or through retirement vehicles like 401Ks), which continues to perform well.

Conversely, renters did not accumulate this same wealth in the past year, have little exposure to the stock market, and are “in a precarious position” regarding what happens in the next month or two, Dr. Yun notes.

consumer confidence

Economists are looking at methods for recovery, and when reviewing major economic indicators, home equity appears to be aiding finances for one population, while another population remains locked out of that option.

This adds to the “K-shaped” recovery economists continue to discuss, wherein half of the population is doing well, while the other half is doing poorly, and will likely do so in coming months (or years).

In recent years, Dr. Yun has continuously pointed to homebuilders and housing starts as the alleviating factor on the market, taking pressure off of affordability. When inventory levels are tight, home pricing continues to increase, which is great news for homeowners, but bad news for hopeful buyers.

Dr. Yun points to labor challenges and the skyrocketing costs of materials like as restrictive to builders, therefore, he didn’t sound optimistic about this changing in 2021, which could continue to keep a substantial portion of the population priced out of the market, without access to that growing housing wealth (equity).

It is easy to expect consumer confidence to remain forked for the foreseeable future with the American population unevenly accessing the housing market.

Lani is the COO and News Director at The American Genius, has co-authored a book, co-founded BASHH, Austin Digital Jobs, Remote Digital Jobs, and is a seasoned business writer and editorialist with a penchant for the irreverent.

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