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Home sales, confidence up
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December 28, 1999: 2:31 p.m. ET
Consumer confidence soars to 31-year high; existing-home sales rise 6%
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NEW YORK (CNNfn) - Consumer confidence soared past a three-decade high in December while existing-home sales rose for the first time in five months last month, suggesting higher interest rates are not deterring consumers from spending money, industry reports released Tuesday showed.
The Conference Board said its index of consumer sentiment rose to a 31-year high as Americans -- flush with rising real estate values, bulging stock portfolios and unparalleled confidence in their jobs -- revised their outlook for the economy heading into the millennium.
The index of consumer sentiment rose to 141.4 in December, said the Conference Board, which is the second-highest reading ever, from a revised 137.0 in November. That was well above analysts’ forecasts of 135.8. The index recorded its highest reading in 1968, when it reached 142.3.
At the same time, the National Association of Realtors said sales of existing homes rose 6 percent in November to an annual rate of 5.09 million units from 4.79 million in October. Analysts polled by Briefing.com had expected 4.90 million units.
In addition, with the persistently strong job market, employees expect their paychecks to increase, according to the board’s survey. More than 29 percent of those surveyed said they expected their incomes to rise over the next six months. That is the highest level this year and up from 28.3 percent last month.
The Conference Board’s index of consumer confidence is often significant for financial markets because consumer spending accounts for about two-thirds of U.S. economic output. The index is based on a survey of 5,000 U.S. households
In fact, stocks jumped into record territory and bonds slipped after the two reports were released early Tuesday. The Dow Jones industrial average rose more than 100 points while the Nasdaq market zipped past the 4,000-mark. The Treasury's 30-year bond fell 3/16th of a point in price, pushing its yield to 6.48 percent from 6.46 percent late Monday.
Old-fashioned rate increases
Taken together, the home sales and consumer reports suggest that U.S. consumers are not slowing their spending despite higher interest rates from the Federal Reserve, which has boosted borrowing costs three times this year in a bid to slow the economy and keep inflation in check. The reports also indicate that more rate increases may be in the cards in the new year, analysts said.
"You’re seeing some reaction to higher interest rates but it’s obviously not significant enough,” said Michael Moran, chief economist with Daiwa Securities. "I think next year the Fed will have to slow down the economy the old-fashioned way with still higher interest rates.”
Home sales on fire
Despite November’s surge in existing-home sales, there was a significant decline in the number of properties available to choose from.
At the end of November, there was an inventory of 1.78 million existing homes available for sale, representing 4.3 months of supply at the present sales pace. That was the lowest inventory since the all-time low of 4.1 months of homes available for resale in December 1994, the real estate group said.
At the same time, "consumer confidence in the economy has not dwindled,” suggesting higher borrowing costs are not having as significant an effect as many economists had expected, according to NAR President Dennis Cronk.
"The consistent pace of the resale market attests to the fact that there is a steady demand by first-time and move-up buyers cashing in on the benefits of stable, relatively low mortgage rates,” Cronk said.
A 30-year fixed-rate mortgage averaged 7.82 percent in September and 7.89 percent in October, according to numbers compiled by Freddie Mac. That compares with a 7.96 percent rate last week and 6.77 percent a year ago.
The median home sale price increased to $133,700 in November from $132,500 the month before. 
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