Florida consumer confidence hits lowest level in more than five years

Published: December 21 2007

Category:Business, Florida, Research

GAINESVILLE, Fla. — The housing crisis, a declining stock market and higher gas prices are all to blame for a two-point drop in Florida’s consumer confidence to 74, its lowest level in more than five years, a new University of Florida study finds.

“Consumer confidence among Floridians is eroding,” said Chris McCarty, director of UF’s Survey Research Center at the Bureau of Economic and Business Research. “The big declines in confidence in December were among low-income households, which fell five points to 64, while middle- and upper-income households fell three points to 77.”

This month’s drop to its lowest level since August 2002 is due entirely to declines in two of the five components, both at 16-year lows. The biggest decline was in perceptions of whether it is a good time to buy big-ticket items, which fell 10 points to 74, its lowest level since January 1991. The other component, perceptions of personal finances now compared with a year ago fell six points to 64, its lowest reading since December 1991.

Two components rose slightly. Perceptions of U.S. economic conditions during the next year rose two points to 64, although the November level of 62 was among the lowest in years. Expectations of personal finances a year from now actually rose a point to 87. Perceptions of U.S. economic conditions during the next five years remained flat at 79.

“Despite the strong showing immediately following Thanksgiving, retailers are reporting relatively weak holiday sales since then,” McCarty said. “As has been the case for the past several months, the main drivers of consumers’ increasingly pessimistic outlook is housing, the stock market and to a lesser extent, the rise in prices, particularly gas prices.”

While gasoline prices have declined some in December, they remain above $3 a gallon, and the stock market, which has been extremely volatile during the past six months, is currently down nearly 1,000 points from its all-time high, McCarty said. But housing is the biggest culprit, he said.

“Everyone now recognizes the excesses of the housing market over the past three years, and the extent to which the problems have spread throughout the U.S. and global economies through mortgage-backed securities,” McCarty said.

With the large stock of housing inventory, and some prospective buyers waiting for prices to drop to their lowest levels, the question remains when prices will hit bottom, he said.

The most positive scenario calls for prices not to drop much lower than they are already, he said. When considering the median price of Florida housing statewide over the past 15 years, the period from 2004 to 2006 appears to be an aberration, McCarty said. The peak was in June 2006 when the median price was $257,800, he said.

Since then, prices have declined 13.8 percent by October 2007 to $222,100, with some saying the recent drop is close to where the price would have been without the run-up, he said.

A second scenario, which excludes the last four years of aberrant data, suggests the median home price should bottom out at about $187,000, which at the current pace of declines, would not occur until March 2009, he said.

A third scenario assumes the economy must pay a penalty for the run-up, a position supported by limited credit, rising foreclosures and the sheer number of houses available.

“My best guess is that the market will have to factor the recent run-up into the overall trend and that the bottom in prices may be reached as early as the second quarter of 2008,” McCarty said.

The big question is how much of a penalty must be paid for the run-up, he said.

“One thing is absolutely certain,” he said. “The peak price reached in June of 2006 is many years away. Anyone who hopes to sell their home at that price will have to wait a very long time. Buyers on the other hand may want to consider second quarter 2008 prices as very near lows.”

The research center conducts the Florida Consumer Attitude Survey monthly. Respondents are 18 or older and live in households telephoned randomly. The preliminary index for December was conducted from 494 responses. Consumer confidence is designed to help predict buying patterns by measuring the mood of consumers toward purchasing. Although other economic indicators also predict buying patterns, consumer confidence tends to be available sooner. The index is benchmarked to 1966, so a value of 100 represents the same level of confidence for that year. The value of the index is in comparing changes over time rather than looking at an isolated month.


Cathy Keen, ckeen@ufl.edu, 352-392-0186
Chris McCarty, ufchris@ufl.edu, 352-392-2908, ext. 101

Category:Business, Florida, Research