US consumer confidence jumps in May

The Conference Board’s index of consumer confidence surged to 54.9 in May from 39.2 in April. The improvement was primarily driven by a 21.3 surge in the expectations index to 72.3, the highest reading since December 2007. This marked the biggest monthly gain in the expectations index since April 2003. An increase in this index is typical at the end of recessions and is therefore consistent with the view that the economy will emerge from the recession in Q3. The present situation component also rose, albeit slightly, to 28.9 from 25.5 in April. This improvement is in line with the small increases seen in the labor differential and the index of present business conditions. Buying conditions for automobiles and major appliances also edged higher, with the percent of respondents planning to purchase an automobile in the next six months at the highest since April 2008.
S&P Case-Shiller US home prices down 32% from the peak

Home prices, as measured by the S&P Case-Shiller index, fell at an accelerating pace in Q1. The seasonally adjusted national composite declined 25% q/q saar, which translated to a 19.1% y/y decrease. This marks the biggest quarterly drop in home prices since the start of the downturn and leaves average prices down 32% from the summer 2006 peak. The 20-city composite fell 18.7% y/y in March, matching the rate of decrease in February. Since the monthly data are calculated as a three-month moving average, it is equivalent to the Q1 average.

All 20 metro areas surveyed expreienced a y/y drop in home prices, of which 10 had record declines (Chicago, New York, Atlanta, Charlotte, Dallas, Detroit, Minneapolis, Phoenix, Portland, and Seattle). However, several metro areas experienced a slowdown in the pace of decline of home prices, particularly in the hardest hit market, California. After plunging more than 40% from the peak in San Francisco, San Diego, and Los Angeles, home prices have started to fall at a slowing pace.

Overall, we expect home prices to drop through most of next year. However, we think the pace of home price depreciation will slow as sales slowly pick up, helping to close the gap between housing supply and demand.