Although interest rates inched up this week, economic indicators point to smooth sailing for the housing market through the summer.
In July the consumer confidence index hit its highest point in more than a year, according to the New York-based Conference Board. The index, which measures the nation's economic mood, topped 107 last month, up 7 points from the month before. A high index can signal a spate of home purchases.
The board's expectation index, which measures consumer attitudes about the business environment for the coming six months, also reached a 12-month high in July.
In addition, almost 4% of consumers surveyed expect to purchase a new home in the next six months, another 12-month high.
"Consumers have finally stopped worrying about layoffs," said Ken Goldstein, economist with the Conference Board. "Confidence is high and rising, and people are buying even more than we thought they would."
"Unless the bottom falls out of the economy and the job market, I don't see any drop in consumer spending throughout the second quarter of 1996," Mr. Goldstein said.
Despite rising interest rates and home prices, Mr. Goldstein sees no danger of a free fall in the housing market.
Meanwhile, the 30-year fixed rate climbed 6 basis points, to 8.49%, in the week ended July 31, more than 100 basis points higher than at this time last year. The purchase index lost 4% from the week before but is still more than 14% higher than last year at this time.
"People who think that rising interest rates and a rise in home prices are going to drive people out of the housing market are just whistling Dixie," Mr. Goldstein said. In fact, a slight appreciation in home prices often spurs potential homebuyers to enter the market, to avoid purchasing at peak prices, he said.
The housing affordability index fell slightly during the second quarter, to 122, the National Association of Realtors announced last week. This is a drop of 9.5 points from the first quarter of 1996.
The figure is derived from factoring together median income, median home prices, and interest rates. When the index is at 100, a family earning the median income has the amount needed to purchase a median-priced existing home using a 20% down payment and conventional financing.
Despite the drop, the index is still at a healthy level, reported John Tuccillo, economist for the Realtors association.
But the association's first-time homebuyers index points to a soft spot in the market. The first-time index was 77.5 in the second quarter, down from a first-quarter figure of 83.6.
"The first-time homebuyer index is nearly 50% below the composite index," said Art Godi, president of the Realtors. "The first-time buyer continues to be locked out of the housing market."
