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Consumers Are Grumpy (Despite Good Economic News)

May 7, 2024 | Posted in: Insights

While the outlook for the economy is never clear, I am hard pressed to explain many of today’s contradictions. As depicted below, Consumers have been relatively grouchy for the past few years.

Yet, the unemployment rate is near an all-time low at 3.9%, the stock market is within an inch of its all-time high, the economy is growing at a moderate rate, and real personal income is growing in line with its long-term trend. Despite what they tell pollsters, consumers have pushed retail sales to an all-time high. Folks, it doesn’t get much better than this!

I think Consumers’ testiness may lie in the difficulties many face in purchasing a home. Affordability is at a historically low level due to high interest rates and the 48% increase in home prices since early 2020. Moreover, even those who can handle the financial burden may be thwarted by the limited supply of homes available for purchase. I have written frequently on this topic so let me just add a few new statistics that were released this week, Only 40% renters believe they will ever be able to buy a home. Moreover, they expect rents to increase 9.7% in the next year and 5.1% annually over the next five years so even staying put will be painful. Finally, respondents to a recent survey expect mortgage rates to rise from the current level of 7.4% to 8.7% one year from now and 9.7% in three years’ time. Given these gloomy statistics, no wonder they are grumpy! However, I think these expectations are unlikely and quite pessimistic. In any case, the real solution to our housing problems is to increase supply which will require action primarily by local governments that determine zoning regulations.