Falling Housing Prices Drag Down Spending for 3rd Straight Month

08-19-2010 • HousingWire.com

The Deloitte Consumer Spending Index, which tracks consumer cash flow to predict future spending, declined for the third straight month in July due to weaknesses in the post-tax credit housing market. The index is comprised of four components: tax burdens, initial unemployment claims, wages and home prices. The index fell 4.45% from last year. Carl Steidtmann, chief economist with Deloitte Research said the downward trend of house prices since the end of the homebuyer tax credit has made it the "biggest drag on the Index." According to the latest Standard & Poor's (S&P)/Case-Shiller House Price Index (HPI), house prices in 20 major metropolitan areas did increase 1.3% in May and 4.6% from a year earlier. But in that same month pending home sales plummeted 30% after the tax credit expired, then fell another 2.6% in June, according to the National Association of Realtors (NAR). "Looking at other components of the Index in July, we see that tax rates, which had declined sharply during the recession, have basically held steady since the start of this year. Real earnings ticked up slightly, following five consecutive declines," said Steidtmann. "American households continue to be cautious about spending while economic growth continues to be uneven," Paul said. "At the same time, consumers economized over the past two years and likely have pent up demand for goods they have foregone."