NEW YORK (MainStreet) — As the economy continues to make modest improvements, consumer sentiment continues to rise with more than half of Americans who believe that home prices will go up over the next 12 months, according to a new Bankrate.com report.
Only 8% expect home prices to decline, compared with 53% of consumers who think home prices will rise. The results of the survey were consistent across gender, age, income and education levels. The positive outlook by consumers is similar to the sentiment expressed last year as 55% of Americans correctly forecast that home prices would rise over the ensuing 12 months and 9% wrongly predicted a decline.
“Housing is like the stock market and something consumers look to as an indicator for whether things are headed in the right direction,” said Greg McBride, Bankrate.com’s chief financial analyst. “When home prices fall, everyone gets a little queasy – homeowners and renters alike. The expectation of continued home price increases underscores an expectation for continued improvement in the job market, household finances and the overall economy.”
Housing has been viewed by consumers as a gauge on whether things are going “in the right direction and as a bogey overall on what the economy is doing,” he said.
This sentiment is viewed the same by both homeowners and renters, McBride said.
“When home prices are falling, no one is happy,” he said. “Everyone gets queasy.”
The belief that improvements in housing prices will continue are an indication that people have some confidence that the economy is going to improve and that their household finances will follow suit. These conditions are more “conducive to home ownership,” McBride said.
Home prices throughout the U.S. should continue to rise in 2014, McBride predicts. Household incomes have only improved “modestly” and have not grown faster than inflation, he said. Incomes across the board are “stagnant” in terms of buying power since higher expenses are eating up gains.
“We’re still looking at very modest increases in home prices as the economy continues to grow and higher paying jobs are occurring,” McBride said.
Consumers continue to feel better in 2014. Bankrate.com’s Financial Security Index registered 100.4 in September, indicating improvement over last year as well as over the past two months.
The index has been over 100 (the level that illustrates improvement over the past year) in seven of the first nine months of 2014. It was above 100 in six of the first nine months of 2013, just two of nine months to start 2012 and none of the first nine months of 2011.
September brought a big divergence on feelings of financial security between men and women. Not only did men’s feelings of financial security improve, but they improved on all five components compared to last month’s reading. Women’s feelings were the exact opposite, falling on all five components compared to last month.
Job security is an area of particular strength this month with 26% of Americans feeling more secure in their jobs and just 14% feeling less secure than one year ago.
Net worth also demonstrated continued improvement with 27% of Americans reporting higher net worth compared to 20% reporting lower net worth than one year ago. Record highs in the stock market as well as continued increases in home prices contributed to these readings.
People should be “very measured about financial decisions, making certain that the uptick in consumer confidence is here to stay and not just a blip on the radar,” said Gail Cunningham, spokesperson for the National Foundation for Credit Counseling in Washington, D.C.
Since credit card debt is on the rise even before the largest shopping season of the year has begun is reason for concern, she said.
“Consumers have begun spending again, but we need to balance that with consumers managing their new debt responsibly and that has yet to be proven,” she said. “Remember that stock market and housing gains are only realized when sold. Until then, they remain on a ledger, and you can’t pay the bills with a ledger.”
--Written by Ellen Chang for MainStreet