As home sales go so does the consumer
Tom Dougherty, CEO – Stealing Share
02 June 2009
Home sales up. A good sign? Right on.
Today’s report that pending home sales rose for the third straight month is indeed cause for optimism, as the housing market was one of the first dominos to fall in the current economic downturn and, for some, the first sign of its depth. Analysts believe the reasons for the upswing are low prices and interest rates, along with the first-time home buyer tax credit.
Of course, the increase was just for pending home sales and not completed ones, meaning whether or not the buyers can gain financing for them is still a question.
However, this may signal a slight shift among consumers on a deeply, emotional level that is good news for the entire economy.
Ever since the economy dropped, consumer behavior has been changing. They are spending less, staying at home more and basing purchasing decisions more on price. What, in essence, took place was a fundamental change in what consumers are seeking: Looking for the “right” choice instead of the “best.” For example, that meant often buying the basic groceries at the discount store and the speciality items – let’s say, a good cut of ribeye – at the more upscale supermarket because it was the right thing to do. (The best would have been to buy everything from the upscale supermarket.)
Housing followed a similar trend, as have other industries such as automobiles, and that meant the downward spending trend was preventing the economy from bouncing back.
But even the attempt by prospective homebuyers to begin the home-buying process is a sign that spending more is becoming the “right” thing to do, especially with changes in prices and interest rates. For those who have put off buying a home because of the economy, the market has made such an adjustment that it’s now the right thing to do. (It may be years, maybe decades, until consumers search out “best” options again.)
The shift is that spending, when the time is right, is now the right choice. That’s good news for all industries, knowing that consumers aren’t automatically deleting spending from their list of right things to do.
For example, even though the U.S. automakers are struggling mightily to hang on today, they will have opportunity to rebound if they can just survive. All of us who have held onto our cars, because buying nothing was the right thing to do, will soon find that those cars are wearing out. When that happens, the “right” thing to do will be to buy a new car.
It will take years before we know how permanent the shifts are within the minds of consumers and the cynic in me says we will fall back into our old patterns. (We’ve already forgotten how high gas prices can get.) But the optimist in me sees the increase in home buying market as a good sign because consumers are only making the big move when the time and situation is right.
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