Auto sales predict home sales

Home sales likely increased this June, as General Motors reported a 16% increase in auto sales in June 2012, selling more vehicles last month than in any other month in the past four years. Chrysler, Ford and Toyota also reported strong increases in sales volume this past month. We await the June home sales volume numbers later this month.

Added incentives from automakers were down 1.6% in May, so increased sales were attributed to falling gas prices, more readily available consumer credit and modest economic growth.

first tuesday take

Auto sales are an indicator of future home sales trends, since auto sales reflect consumers’ ability and willingness to make long-term commitments to major purchases, called consumer confidence. Consumer confidence is a leading indicator of future home sales volume.

If more consumers have the financial confidence to take out a two- to seven-year auto loan, there will be a similar increase in financially secure consumers willing to take on a 15- or 30-year mortgage.This is especially true at the start of a recovery (our present state), as jumps in auto sales have historically preceded increased home sales following a recession. Cars wear out faster than homes, and the ability to commute is a necessity more pressing than replacement of shelter.

Traditional measures of consumer confidence are limited by their speculative survey format, as consumers surveyed do not actually have to put their forward-looking survey answers into practice. Using auto sales as a leading economic indicator more accurately predicts future home sales since the concrete sales numbers reflect consumers who have “put their money where their mouths are,” so to speak.

Related article:
Homebuyers feel ready and willing to buy, but not financially able

But consumer confidence will only fuel the current trend in auto and home sales for so long – we just don’t have the job growth to sustain increased volume in either type of sales. Alas, these increases are just another bump in the bumpy plateau recovery, for now.