Recent monthly survey results for the Case-Shiller Home Price Indices show home prices across the U.S. ended 2011 at new low levels for the year. At the same time, the Conference Board’s monthly measure of consumer confidence increased to a level not seen in over a year. Both these measures are key indicators of the recent and upcoming economic health of the U.S. and would seem to tell a different story.
As measured by the national house price index, residential home prices decreased by 3.8 percent during the fourth quarter of 2011. Comparing home prices in the fourth quarter of 2011 to the fourth quarter of 2010 shows a decrease of 4.0 percent. The year-to-year price comparison was not as dramatic as might have been expected, with housing prices showing some signs of temporary recovery, or at least stabilization, during mid-2011.
Along with the national house price index, 10-city and 20-city indices are reported. These two latter indices also showed negative price comparisons against the same period in 2010. All three of these house price measures have now fallen to their lowest values since mid-2006.
Housing prices peeked around mid-2006. From those peek values, average home prices across have fallen approximately 33.8 percent through the end of 2011. Residential housing prices in areas such as Washington, D.C. have weathered the storm a bit better, while home values in and around Phoenix, Las Vegas and Detroit have fared much worse.
Given the continued doldrums in the vast majority of the larger housing markets, the generally positive indications from the recent consumer confidence measures appear somewhat contradictory. Importantly, the housing price measures are all backward-looking and the consumer confidence measures are more forward-oriented.
Key components of the consumer confidence measure include the current outlook for an improving U.S. business environment and expectations of increasing domestic job opportunities. Overall, the confidence index rose to 70.8 in February from 61.5 in January. An increase of over 15 percent in one month.
Ongoing divergence of these two key economic indicators won’t likely persist for an extended period of time. As all these critical measures are related to some degree, convergence will occur.
Kirby Brown is the CEO of Beneficial Financial Group in Salt Lake City.
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