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Tuesday September 1st, 2015 12:16PM

Consumer confidence up in Feb.; contracts for new homes almost static in Jan.

By The Associated Press
WASHINGTON (AP) -- A surprisingly optimistic outlook among younger Americans and a higher stock market pushed up a measure of U.S. consumer sentiment in February. Meanwhile, contracts for new homes barely budged in January.

The increase was small, but the harsh winter weather appears to have had little effect on Americans' confidence so far. That's a sign that spending might pick up in the coming months.

The University of Michigan's consumer sentiment index ticked up to 81.6 in February from 81.2 in January. It's still slightly below December's figure.

"While the weather made trips to the store more difficult, the data suggest that purchases were postponed rather than canceled," the report said. For example, consumers' home-buying plans were largely unchanged.

The survey also found that Americans under age 35 have grown more optimistic that their pay will increase. On average, they expect income gains of 5 percent over the next 12 months, the survey found. That's the largest expected gain since November 2006.

Richard Curtin, director of the survey, said that is a welcome change for an age group that has been particularly hard hit by the recession and sluggish recovery. Unemployment rates for younger Americans have been much higher than for older workers since the recession ended almost five years ago. And their income gains have been weak. Anecdotes of college graduates living with their parents and working low-wage jobs are widespread.

The Michigan survey's finding provides some hope that such trends might be turning around. In a healthy economy, younger Americans usually anticipate solid income growth as they gain experience and become more productive, Curtin said. Optimism about future income may suggest that more people under 35 are finding jobs and that some who are working are getting promotions, he added.

Still, other surveys haven't found rising optimism among younger people. In an Associated Press-GfK poll in January, just 38 percent of those under 35 said they expected their financial situation to improve in the coming year, down from around half who said so through most of 2011 and 2012.

Among Americans as a whole, the expectation is that their paychecks will rise just 0.9 percent in the coming year. While that matches a six-month high reached in January, it's still below the inflation rate and is low by historical standards.

CONTRACTS FOR NEW HOMES

The number of Americans who signed contracts to buy homes was essentially flat in January, a possible sign of a softening real estate market.

The National Association of Realtors said Friday that its seasonally adjusted pending home sales index inched up 0.1 last month to 95. The index has fallen 9 percent over the past 12 months as sales momentum has faded.

Pending sales are a barometer of future purchases: A one- to two-month lag usually exists between a signed contract and a completed sale.

Higher mortgage rates, rising prices and a tight supply of homes have restricted sales in recent months. Snowstorms across much of the country also delayed purchases. The Realtors project that sales will total 5 million this year, down from 5.1 million in 2013.

Ian Shepherdson, chief economist at Pantheon Marcoeconomics, thinks home buying could slow further through March.

"The bad news is that existing-home sales need to fall a bit further to move fully into line with the pending-sales index," he said in a client note.

The rising costs of buying a home have contributed to a slowdown in signed contracts over the past seven months. Sales of existing homes plummeted in January to the weakest pace in 18 months, the trade group said last week.

Some of the price pressures will be eased if more homes come onto the market in the months ahead. One way to increase the supply is through the construction of new homes, a sector not measured by the Realtors' indicator on sales.

Purchases of new homes rose 9.6 percent in January to a seasonally adjusted annual rate of 468,000, the Commerce Department said this week. That was the fastest pace since July 2008 and could lead to an uptick in construction.

More homeowners might also choose to put their properties on the market, a possibility suggested by a decline in underwater mortgages at the end of 2013, according to a report Friday by real estate data provider Zillow. Homeowners are considered underwater if they owe more on their mortgage than their home is worth.

A decline in underwater mortgages should enable more Americans to list their homes for sale because they would no longer be unloading their homes at a financial loss.

The share of mortgage holders with negative equity in their homes fell to 19.4 percent in the final three months of last year, down from 27.5 percent during the same period in 2012. Still, the negative equity rate remains four times the level of a healthy housing market.

So even if the supply of homes increases, it will be several years before the market returns to its usual conditions.

"Negative equity likely won't be back to normal levels for another five years," said Stan Humphries, chief economist at Zillow.
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