With home prices jumping at levels not seen since the housing boom in 2006, consumer spending grows more confident as fundamentals improve – a good sign for commercial real estate services.
The Los Angeles Times reported a 28 percent gain in median home prices in Southern California in June compared to prices last year. Median home prices grew from $300,000 last June to $385,000. The information from DataQuick revealed that June’s rise in home prices was the largest percentage gain ever recorded in year-over-year comparisons since 1989 when data tracking began.
“They are following the fiddler,” Amber Dolle, real estate agent, told The Los Angeles Times. “They are hearing that there is this huge panic to get into a home.”
As mortgage rates continue to fluctuate, and the market constrained by short supply, buyers are increasingly put into direct competition with investors eager to purchase single-family homes for “flipping.” Often times, that means outbidding the asking price, driving up the spike in prices. Deals involving the buying and selling of homes within six months – known as “flipping” – increased by 19 percent in the first half of 2013. Since 2011, those deals have spiked by 74 percent, artificially driving up demand and prices, according to Bloomberg.
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As markets continue to improve, consumer spending has concurrently experienced gains. The Deloitte Consumer Spending Index increased in June, moving up from 4.2 to 4.3 in June, as unemployment claims declined and home prices spiked nationally.
“Strengthening housing and job markets can have a profound impact on consumers’ ability and willingness to spend,” said Daniel Bachman, Deloitte’s senior U.S. economist. “Improvement has been slow but steady month to month, and both housing and employment have regained their footing since last year. Consumers appear to have adjusted to the effects of higher tax rates and the sequester, which has also helped sustain household spending.”
Real new home prices reached $113,833, a 9.2 percent increase from this time last year, while unemployment claims dropped by 7 percent in May from 2012 levels. However, the factors are also considered within the framework of a seasonal context.
“Even if consumer sentiment and household finances are on the mend, shoppers still expect a good deal,” said Alison Paul, vice chairman of Deloitte LLP and retail & distribution sector leader. “A cooler than usual spring left some retailers to rely on markdowns to make room for back-to-school items. Retailers can use attractive offers, one-of-a kind events for children and teens, and promotions to help encourage parents to shop their brands this back-to-school season. Moreover, retailers should link their marketing messages across their store, mobile and social channels to get consumers in the door in July and keep the momentum going through the summer.”
