Wednesday, February 24, 2010

Cannot Afford Low Prices And Low Interest Rates?

Markets tanked yesterday, and one of the reasons was the gauge of US consumer mood by Conference Board, that failed to inspire.

Bulls were sceptical - should we take the reading seriously? For example, Nomura commented:

The Conference Board's index of consumer confidence fell over 10 points in February after reaching a 15-month high in January. Though the consensus expected a small retreat , the magnitude of this drop was stunning and, at face value, would seem to signal an important set back for the nascent recovery. The decline, which cut the headline index to a 14-month low, reflected mainly a marked downgrading by consumers of their assessment of current conditions. That index fell to 19.4, an all-time low. Against a back-drop of rather impressive recent economic data, including a surprising dip in the jobless rate and low core inflation, this seems especially puzzling. The overall drop in confidence reflected deterioration in attitudes across all income groups, 7 of 9 regions and 2 of 3 age groups. As uniformly unsettling as the details of this report look, the contradiction of this evidence with other measures of consumer attitudes (e.g. the Michigan survey and recent Gallup poll readings) warrant skepticism. So too does the rather suspicious regularity of February weakness in this index. Since 2000, the index has declined in all but one (2007) February . Such a regularity across a varying backdrop of cyclical conditions business cycle time is unusual and raises questions (for which we have no ready answer) about the reliability of this particular seasonally adjusted measure.
On the other hand, BNP Paribas had the lust to dig for explanations. Click on chart to enlarge, courtesy of BNP Paribas.

BNP Paribas focused on home buying conditions and plans to buy:

The University of Michigan index of buying conditions for homes, which is calculated as a percentage of people who believe that it is a good time to buy less a percentage of people who think it is a bad time to buy, bounced up in 2009 and remains above its long-term average (see above chart). However this measure has diverged sharply from plans to buy a home in the next six months in the Conference Board Survey, although ... the improvement in the Michigan survey has better captured the movements in home sales. The University of Michigan survey also asks the respondents why they think it is a good or a bad reason to buy a house. Low house prices have been the main driver of the improvement in housing demand, while the percentage of people citing prosperity or good investment as a reason for a purchase is virtually zero.
Click on chart to enlarge, courtesy of BNP Paribas.

Low prices and low interest rates are not enough to afford a house? Where are we going?

I do not wonder that people cannot afford a house at these "low prices" and "low interest rates", especially, if one keeps in mind "Labour Underutilization Rate By Household Income".

No comments:

Post a Comment