Consumer Sentiment Falls 9.8% in Feb as Home Sales Drop 4.9%

Consumer Sentiment Falls, Housing Market Sees Mixed Signals

Consumer sentiment took a significant hit in February, while the U.S. housing market displayed mixed performance, according to the latest data from the University of Michigan and the National Association of REALTORS® (NAR). These developments offer critical insights for traders evaluating market sentiment and economic stability.

Consumer Sentiment Drops Across the Board

The University of Michigan’s Index of Consumer Sentiment dropped to 64.7 in February, down 9.8% from January’s 71.7 and marking a 15.9% decline year-over-year. The decline was broad-based, impacting all demographic groups and all five index components.

Buying conditions for durable goods saw the steepest drop, falling 19%, largely driven by concerns over potential tariff-induced price increases. Expectations for personal finances and the short-term economic outlook each slipped nearly 10%, while the long-term outlook declined by 6%, hitting its lowest point since November 2023.

Inflation expectations added to the downbeat mood, with year-ahead inflation rising to 4.3%, up from 3.3% in January. Long-run expectations also climbed from 3.2% to 3.5%, the largest monthly increase since May 2021. The inflation outlook’s deterioration was widespread, impacting most demographics and political groups.

Existing-Home Sales Slide in January

The U.S. housing market presented a mixed picture in January. Existing-home sales fell 4.9% from December to an annualized rate of 4.08 million units, as per NAR data. However, sales rose 2.0% year-over-year, marking the fourth consecutive month of annual growth.

Housing inventory increased by 3.5% month-over-month to 1.18 million units, providing a 3.5-month supply at the current sales pace. The median home price reached $396,900, up 4.8% from a year earlier, extending a 19-month streak of price gains.

Regional Variations Highlight Uneven Market

Sales declines were observed in most U.S. regions, with the West experiencing the largest drop of 7.4%. The South fell 6.2%, and the Northeast saw a 5.7% decline, while the Midwest remained stable. Despite mixed sales, home prices increased across all regions, led by a 9.5% surge in the Northeast.

Mortgage rates remain elevated, averaging 6.85% for a 30-year fixed-rate mortgage as of February 20, only slightly down from last week’s 6.87%. High mortgage rates combined with rising prices continue to challenge housing affordability.

Market Forecast: Caution Ahead

The drop in consumer sentiment and the housing market’s uneven performance suggest a cautious outlook for traders. Elevated inflation expectations may drive volatility, particularly in interest rate-sensitive sectors. In the housing market, while increased inventory could support sales, affordability concerns may cap potential gains. Short-term market sentiment leans bearish, with inflation data and Federal Reserve signals likely to influence near-term trading strategies.