Consumer Confidence Surges: Pressure on Chicago Home Loan Rates

A recap of yesterday’s weekly Mortgage Rate Predictions:  High confidence = good economy = worse mortgage rates.

Well, confidence surged, yielding the highest reading in 34 months.  Just think about that, for nearly three years we’ve been looking at monthly readings that have averaged below a 50% reading.

Greenspan’s famous “irrational exuberance” quote was one end of the spectrum back in 1996.  Yet, have we just lived through “irrational depression?”

Consumer confidence is not based on hard economic data.  It’s a “how you feeling” poll.   Since World War II, we had a 60-year cycle of increasing leverage and the related good vibes that follow from big houses, flashy cars, and loose credit.  Reality is that a household negative savings rate is not only not good, but not sustainable.

That 25% reading back in early 2009 wasn’t economic, it was the equivalent of a financial hangover from being punch drunk on credit for 60 years.

This is the new normal.  And about two-thirds of Americans are starting to grasp and embrace it.

We also spend when we’re not in total panic mode.  Old appliances get replaced, cars get upgraded, and we do vacations, not just staycations.

Well, we also buy homes.  If this data continues and extends into the housing market, the big winners will be the mid- to upper price range homes.   That growing family in a 3BR/1.5BA starter starts to see that 4BR/3BA as attractive now knowing that it will cost more and have a higher rate in the future.

If you’ve been smart enough to look for maximum affordability, it’s staring you straight in the face.

If consumer confidence pops up another 10%, it’s fair to say that home prices will jump at least a few percent.  It’s also fair to say that, eventually, mortgage rates must follow.

So, if you’re buying a home or thinking of a refinance, rising confidence in the economy may be a signal to act sooner rather than later.