Californians are feeling pessimistic about future finances, according to Chapman University’s Consumer Sentiment Survey.

California consumer sentiment descended from an index number of 97 in the fourth quarter (Q4) of 2019 to 83 in Q1 2020. A year earlier, the index was at 92.

An index of 100 means an equal number of positive and negative responses. The greater the percentage of positive responses, the higher the index figure.

Respondents were even less optimistic about how businesses will fare in the coming year, with the index on U.S. business conditions in one year dropping from 96 in Q4 2019 to 77 in Q1 2020.

Expectations for the ability find a job in the coming year also decreased, from 97 in the prior quarter to 85 in Q1 2020.

The somewhat better news: despite low expectations for the economy in the coming months, respondents who said they were likely to purchase an automobile in the coming year decreased more gradually, from 102 in the previous quarter to 93 in Q1 2020.

While down, the decrease is not as steep as other subsets of the consumer sentiment survey. This shows that — even though consumers are expecting poor economic performance in 2020-2021 — many are still anticipating making large purchases. This bodes well for home sales.

Don’t forecast based on consumer sentiment alone

Information on homebuyer sentiment is somewhat predictive of future real estate sales volume for brokers and agents, since it tracks both:

  • where we have been, as sentiment reflects the experience of past events; and
  • where we are going, as optimism about the economy is translated into willingness to make large purchases.

However, survey responses are based on events that have already occurred, experienced by the person interviewed. As more facts and information become available, reported and absorbed, consumers change their opinions about the future.

It takes several months from the moment a homebuyer or seller first considers buying or selling to the day the transaction closes and the real estate agent receives their fee. Thus, consumer sentiment has a lag time of several months before any buyer call to action is actually turned into a sale by agents. During this time, facts and figures will change, and the outcome will shift.

To more accurately forecast future sales numbers, other factors real estate professionals need to watch closely in 2020 include:

Expect the home sales volume slump to continue in 2020 and 2021, the result of shelter-in-place orders and economic volatility. Sales volume won’t recover until the pandemic response has ended. Then, California’s housing market will need to emerge from the underlying recession, a recovery not likely to begin until 2022-2023.