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With inflation showing signs that it has peaked, consumer confidence is back on the upswing. Energy prices continue to fall, food prices have stabilized and the Federal Reserve even moderated its most recent rate hike in December. However, Straight Arrow News contributor Larry Lindsey warns there is trouble on the horizon. Key indicators such as residential home prices are likely to rise again in 2023, which could rattle consumer confidence.
One of the big ones is gas prices. Gas prices, which had hit close to $5, they’re now down to just over $3. They were $2.12 in January 2021 for comparison. But oil prices have come down a lot. I’m not sure they’re gonna stay there. A lot of people that I trust who look at this carefully predict that gasoline – or rather oil prices – are going to go up to about a hundred dollars a barrel. This will add between 60 cents and a dollar to current gas prices. That is almost certain to depress confidence going forward.
Another area of concern is home prices. Not only did home prices go up a lot, but mortgage interest rates did as well. The National Association of Realtors has an index of affordability for home prices. It’s how much of a median-priced home can be afforded by a family with median income. So that indicator a year ago used to be 143, meaning a median-income family could buy a house that was 143%, or 43% more than the median. That’s great; typical family can buy more than a typical home. That has now plunged to an indicator just 91, meaning that a median-income family can’t afford a medium-priced home, just nine-tenths of a median-priced home.
That is certainly depressing home sales quite a bit. They have fallen from six and a half million to just 4.1 million over the last year. That is going to be a continuing headache for consumer confidence. And when you can’t buy a house, you also really can’t buy the refrigerator, the air conditioner and the major appliances that come with buying a home. And so confidence in buying big-ticket items like those, as well as automobiles, is down significantly.
So what does confidence look like in the year going forward? I think it’s going to be volatile just like it has been in the last two years. We’re going to get good news and bad news. I think the home price problem and the high prices of a lot of big-ticket items will continue and I think gas prices will rise. On the other hand, I think our overall wages are going to beat overall inflation.
So I would predict that as the news comes in, on net, we’re going to see very little change in consumer confidence, roughly about 108, which is what it is today, throughout next year. But expect it to go up and down as the year goes on.
