New Home PSI: October New Home Pending Sales Increase 14.5%
Dec 04, 2018
Housing Trends
The connection between consumer confidence and the economy is crucial. After all, consumers make up two-thirds of GDP. Our Director of Economic Research, Ali Wolf, explains how the media can influence reality for consumers and why it matters for housing.
Research from economists and academics has quantified the relationship between negative headlines and their impacts on consumer confidence*. Findings suggest that during changing or slowing times, consumers will pay more attention to the media. This allows news sources to influence the reader through both the tone and volume of articles on a given subject.
Bad news travels fast.
Of Articles Are Shared Without Being Read
Frame of reference matters.
Headlines play an even bigger role for consumer goods like housing because individuals pay more attention to news that directly impacts their financial well-being.
July 24th, 2018 marked a big shift for housing sentiment when CNBC posted their article “Southern California Home Sales Crash, A Warning Sign To The Nation.” The story garnered America’s attention and was shared nearly 1,000 times on Facebook. For reference, of the roughly 400 posts on CNBC’s Facebook over the past two weeks, only 7% had a larger number of shares.
The article posted legitimate data highlighting that new and existing home sales slipped 12% in Southern California in June. Knowing the average reader will stay in the article for 15 seconds (thanks for sticking with us!), and assuming our team reads as quickly as the average American, that means that only the “key points” and the first paragraph will be read. A committed reader would need to get through 60% of the article before finding the real story – sales dropped 21% for homes priced under $500,000 because the supply is scarce rather than a uniform pullback across all price buckets.
Four months later, we are able to see a strong link between the article and search habits. We used Google Trends** to look at search activity before and after the week of July 22nd, during which these two articles were also published.
Today is unique in that the headlines are pulling consumers away from the economic reality. All the fundamentals are lined up (employment, GDP, population growth, etc.) making consumer (and builder) confidence the lifeblood of the housing market.
If confidence softens, consumers will spend less money. Fewer dollars spent means lower corporate earnings. Lower earnings translate into a shift away from hiring and capital expenditures. The combined effect can create a downturn alone, with negative confidence in the market becoming a self-fulfilling prophecy.
Moving forward, these media headwinds mean that the industry needs to create a reason for the consumer to buy, whether that is better marketing to highlight a “deal” for the buyer or a compelling product.
*Click the following links for full access to a sample of the academic research: https://bit.ly/2SlDOQj and https://bit.ly/2SeGf7s.
**Google Trends is a website where one can analyze search behavior.