Real Estate Market Forecast: Winter Storm Advisory

Over the past several years, I have been watching real estate market sentiment ebb and flow.  Some seasons, my phone rings off the hook, and others, it sits there idle and I wonder why I bother paying such a large cell phone bill.  It is interesting to see how an over arching cosmic vibe affects market activity from day to day.  For instance, on days that the DOW plunges 1% or more, my phone does not ring with client calls.

One of the big events that affected call volume and market activity was the S&P debt ratings down grade of U.S. issued debt.  For two months, the market was nearly vacant of buyers.  I could hear crickets. 

Since that time, I found an index that correlates with my experience of high and low market activity.  The chart is the Gallup Economic Confidence poll.  Here is the chart (click to enlarge) going back to last summer:

 I have circled the period that occurred around the debt downgrade and the national debt ceiling debate.  As you can see, the sentiment drop was quite precipitous.  It took the market almost 6 months just to return to pre-downgrade levels of confidence.  In recent months, confidence has ebbed slightly but nothing incredibly noteworthy.

The reason I bring this up is that we may be in for some choppy consumer confidence conditions starting toward the end of this year.  There are several things that may make for an extra cold market this winter:

Debt Ceiling Debate Redux

According to the Wall Street Journal,  we should be at our maximum debt limit as a nation again by around December 20th.  What a wonderful Christmas present.  Congress will likely be contentiously debating the issue in January to pass another extension.  We can likely anticipate yet another downgrade as a result.  Consumer confidence is likely to suffer as it did last time.

Arrival at The FIscal Cliff

Due to the inability of Congress and the Executive Branch to come up with a solid budget reduction proposal last year, we have The Fiscal Cliff which we are scheduled to cascade over automatically unless Congress and the Executive branch take action to avoid it.  What is it?  It is an automatic income tax increase (cancellation of G.W. Bush's tax reductions from yesterdecade) and the simultaneous cut in Federal spending.  I am all for the spending cuts.  The tax increase will be painful.  Therefore, expect a big hit to consumer confidence in the wake of an over arching tax increase on the population.  Interestingly, economists expect the issue to be dealt with before the year is out.  Yet, the public is not likely to react well as the debate can only produce anxiety while a solution is forged. 

Geopolitical Stress

This may seem way off the radar of for local real estate issues but geopolitical stress can affect consumer confidence as well.  This is especially true when it affect prices at the gas pump.  Currently, the Middle East is a tinderbox and becoming more unstable by the month.  There may be war drums beating and military action in the Middle East after our November election that, if it occurs, will certainly affect oil and gas prices here at home.  Expect consumer confidence to react accordingly.

We live in a turbulent world.  Markets react accordingly.  I anticipate that after experiencing a pleasant chapter of moderation over the last 6 months and for still several more, we may enter a rather choppy period just as we enter the Holiday season.  It is my hope though we will be through the worst of it just in time for the Spring selling season.