Consumer Confidence Tracks Renter Outlook

There are a number of consumer confidence surveys out there and with each passing week it seems yet another publisher is trying to index one thing or another. I have long since suspected that these surveys aren't all that reliable as economic indicators, but they have been useful in one respect.

Don Marquis, American poet and writer – 1878 to 1937, once said, “An optimist is a guy that has never had much experience.”

There are a number of consumer confidence surveys out there and with each passing week it seems yet another publisher is trying to index one thing or another. I have long since suspected that these surveys aren’t all that reliable as economic indicators, but they have been useful in one respect. While the surveys generally measure a consumer’s propensity to purchase, or make life changes based on how they’re feeling about their own situation, they also provide insight into the psyche of renters. Renters will more often than not (81%) accept some rent increase at renewal or pay for a higher cost apartment if they wish to upgrade when they’re feeling comfortable and positive about their lives, so keeping watch on the University of Michigan’s Survey of Consumers is important to anyone in the apartment business.

According to Richard Curtin, the survey’s chief economist and someone I’ve spoken with at NABE meetings, (economist egghead group who debate components of GDP and
complain about the CPI – I love this group), “Consumers are increasingly aware that the economy is improving and, more importantly, expect job prospects to become more favorable in 2011.”

What the survey also says is that consumer confidence is at its highest level in three years. High income households (above $75,000) accounted for a rise in the sentiment index of almost 10%. That index did decline slightly in lower-income groups by under 2 percent. A more interesting observation about the release is that this formerly white collar
recession is now seeing the best opportunity for growth in employment and income in higher wage positions. Good news for apartment leasing and part of a broad based trend leading away from the recessionary years of 2007 to 2010, and focusing now on the anticipated recovery. It also portends a generous outlook that a double dip recession is unlikely. Other leading economic indicators seem to agree with that as well.

So what to do with this bit of good news?

The indicators, along with recent news in apartment markets about resurgent rent increases and gains in occupancy should encourage owners to look at their pricing and revenue management systems, which almost always miss critical inflection points like these. While we’re in the low end of the rental cycle, with leasing season a few months away, now is a good time to examine economic occupancy, instead of physical occupancy, and see if your asset manager has a handle of what’s going on. You may just find they’re still leasing like it’s 2009.

Jack Kern is the managing director of Kern Investment Research LLC, a consultancy specializing in real estate research, investment banking and advisory services. He is also the principal founder and chief research officer for the Association of Real Estate Research Professionals, a group currently located on LinkedIn. You are invited to explore this group and share insights on real property research with the membership.