According to Capital Economics: “For this exercise, we have chosen to look at the Gfk consumer confidence indicator and Nationwide house prices.
“Since plunging to a record low of -39 in July 2008, the Gfk composite consumer confidence balance has risen to -25 in August. Similarly, having fallen at a record pace in 2008, house prices have now begun to rise again.
“But, despite its recent rise, consumer confidence remains at levels comparable to the lows recorded in the early 1990s downturn, and the upturn in house prices appears to have gone much further than is justified by the improvement in consumer confidence.
“Of course, we have only compared one house price index and one consumer confidence indicator. But even comparing the Halifax index (which paints a more downbeat picture of the housing market than the Nationwide) with the EC index (which suggests that confidence is stronger than the Gfk index), the big picture is that the rise in house price growth has been too strong to be deemed consistent with better consumer confidence.
“Admittedly, it is possible that confidence will follow house prices up, rather than the other way around. But consumer confidence tends to have stronger leading properties than lagging properties.
“Is it right to focus on the headline confidence measures? Would the responses to some of the more detailed questions on consumers’ views on the outlook for the economy, their own finances or their willingness to make major purchases offer more insight? In fact, the headline indices have a better correlation with house prices than the sub-components.
“And in any event, that the Gfk major purchases balance, the sub-component with the strongest relationship with house price growth (correlation coefficient 0.69), has deteriorated in the past three months. As such, it does nothing to alter our earlier conclusions.
“While it is does not necessarily follow that house prices are about to fall back, the turn in the major purchases balance does suggest that the housing market may yet be vulnerable to a worsening in sentiment. With economic growth likely to be lacklustre for a while yet and unemployment set to rise further, this is another reason to believe that the recent rise in house prices may yet be a false dawn.”
