Consumer sentiment falls as builder confidence improves

Fears regarding a fragile economy and inflation have continued to weigh heavily on consumer sentiment in March, an implication that could have a negative effect on home sales during the course of 2012.

Fears regarding a fragile economy and inflation have continued to weigh heavily on consumer sentiment in March, an implication that could have a negative effect on home sales during the course of 2012.

According to a preliminary Thomson Reuters/University of Michigan consumer sentiment index, consumer confidence dipped from 75.3 in February to 74.3 in the middle of March. In addition to an unstable economy and inflation, rising gas prices could also have an impact on household spending habits throughout the year.

"One-year inflation expectations surged seven-tenths during the first two weeks of this month to 4 percent, which is a very high reading for this report," analysts from Econoday said in response to the report's findings. "The research firm noted that higher gas prices reduce income levels, pushing overall confidence lower."

In the years leading up to the housing market collapse, the consumer confidence level generally hovered close to a score of 80. Since then, however, confidence has struggled to regain lost ground. 

Meanwhile, despite the slight drop in consumer confidence, builder confidence remained relatively unchanged at 28 in March, according to the National Association of Home Builders Housing Market Index. This is the highest the level has been since June 2007.

"Builder confidence is now twice as strong as it was six months ago, and the West was the only region to experience a decline this month following an unusual spike in February," said NAHB chief economist David Crowe. "That said, many of our members continue to cite obstacles on the road to recovery, including persistently tight builder and buyer credit and the ongoing inventory of distressed properties in some markets."
 
However, despite steady improvements seen during recent months, the report noted that many builders are still being cautious. The real estate construction industry was devastated in the wake of the housing market collapse, an occurrence some experts says will take many builders some time to forget and move back to their pre-recession building habits.     

Regionally, real estate data showed that builders confidence gained five points this month in the Northeast, bringing the overall score to 25, while the Midwest's index rose two points to 32. In addition, the South's reading also improved two points to an index total of 27, while the West saw confidence levels plummet 10 points in the wake of a 22-point gain recorded the previous month.



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