A poll reflects the negative outlook of U.S. Consumers.
America’s Research Group released its latest survey conducted last May 1 to 3 about U.S. consumer outlook. In a report by CNNMoney.com, “The majority of U.S. consumers do not think the worst of the U.S. economic crisis is behind them and plans to spend on luxury items remain low. Only 34.3% of consumers surveyed said they think the worst of the crisis has passed, while 52% said they did not think the worst was over yet.” Britt Beemer, head of the research group also adds, “I’m really convinced that there is no discretionary spending going on right now. The only spending is replacement spending.”
We’ve tried to find a copy of the research online but to no avail. From the same report, only consumption of food and luxury items is mentioned though. So we assume therefore that they made no survey about real estate purchases. What’s interesting to know is that majority are still considering the price of food when making a purchase. Knowing that necessities are inevitable but may have the tendency to decline in demand when income is reduced, the survey certainly reflects the general sentiment in America. And since luxury falls in discretionary spending, any increase in consumption is palpably impossible during recession. But where do home purchases find their place?
For first homes, it will absolutely fall on necessary spending as individuals believe this is a need. Second homes however can be regarded as discretionary expenses since a family may give up its extra property without having to move out of the first home (except for properties that are sources of income like rental units where it would be difficult to give up). Therefore when analyzing the ARG data, first homes would fall between food consumption and luxury purchase because the former is a more immediate demand while the latter is not. Based on this, it’s safe to assume then the May pending home sales data will be much bleaker as opposed to the March 2009 first time homebuyers’ contribution of 3.2 percent increase in sales. To support this, the latest consumer credit has fallen to a record-low $11.1 billion.
ARG’s findings may not directly relate to the property market, but it tells a good story of how things will turn out. After all, home affordability is determined by the buyer’s income where 25 percent of his or her earnings will go straight to the mortgage principal and interest. That is, after food and utilities are usually paid off first.