Consumers still see value in buying and owning homes. Yet with memories of the recession still fresh in their minds, the recent lift in real estate prices hasn’t been enough to persuade them to spend against that growing value.
In a keynote speech at the National Retail Federation’s annual conference in New York on Tuesday, William Dudley, president of the Federal Reserve Bank of New York, said this consumer hesitancy is one reason retail sales have been held back.
“People haven’t actually tapped that housing wealth,” Dudley said, noting that home values have increased 40 percent since 2012.
Dudley’s comments follow what was, on the surface, a solid holiday season. According to the National Retail Federation, retail sales rose 4 percent in November and December, outpacing the prior 10-year average of 2.5 percent growth.
But spending was choppy, and many traditional retailers struggled to capitalize on those gains. Along with a reluctance to spend money backed by the future value of their homes, a shift toward spending on experiences, a desire for deep discounts and an increased penchant for the web weighed on retailers.
Looking forward, Dudley is unsure whether the recent gains in consumer confidence, which hit a 15-year high last month, will translate into elevated levels of spending. However, as the recession moves further into the rearview mirror, he predicts housing equity will once again become a source of consumer spending.
“As time passes, people will forget the financial crisis,” Dudley said.