Much of the economy is perception. High mortgage rates – and the potential that those will continue for some time yet – are contributing to a somewhat dimmer outlook on present and future economic conditions among consumers.
More than half – 51.4% – of consumers now expect higher mortgage interest rates over the next year, and the share of hopefuls dropped. Those expecting lower rates to come fell from 28.5% in December 2024 to 23.9% in January, according to a new survey from the Conference Board, a nonprofit think tank.
The organization’s Consumer Confidence Index was down 5.4 points in January to 104.1. December's reading was down 3.3 points from the previous month.
The Conference Board gathered data until Jan. 20, 2025, the day President Trump was inaugurated. Perhaps most notably, the “Present Situation Index,” which is based on consumers' assessment of current business and labor market conditions, fell sharply according to those data, dropping 9.7 points to 134.3.
“We saw some decline in consumer optimism in both the present situation and about the expectations for the future. However, the largest drop was for the present situation,” Stephanie Guichard, senior economist of global indicators at The Conference Board, said in a podcast on the consumer confidence index.
“Consumers are still talking a lot about inflation and prices” in responses to the organization’s survey, Guichard noted. “We have this open question asking consumers what’s affecting their views the most about the economy, and inflation and prices are still on top.”
Meanwhile, the group’s “Expectations Index," which is based on consumers' short-term outlook for income, business, and labor market conditions, was also down. It fell 2.6 points to 83.9 in January, but remained above the threshold of 80 “that usually signals a recession ahead,” the Conference Board noted.
Age played a part in consumer confidence levels, according to the organization, with those under age 55 reporting a drop. Consumers over 55, meanwhile, saw a small uptick in confidence.
These data showing lower consumer confidence – and perhaps, along with it, less willingness to take the plunge on home purchases – come on the heels of some greater optimism among consumers that had followed the 2024 elections.
For instance, the Fannie Mae Home Purchase Sentiment Index, or HPSI, increased by 0.4 points in November 2024, marking a significant year-over-year rise in consumers' feelings about homebuying driven by optimism that mortgage rates would decrease.
And getting through the elections last November also seemed to quell homebuyer concerns, when in early December, real estate brokerage Redfin noted an uptick in consumers going on home tours and putting in loan applications.
