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Americans are in a buying mood, thanks largely to the housing recovery.
The latest sign emerged Tuesday as the Standard &
Poor’s Case-Shiller home price index posted the biggest gains in seven years.
Housing prices rose in every one of the 20 cities tracked, continuing a trend
that began three months ago. Similar strength has appeared in new and existing
home sales and in building permits, as rising home prices are encouraging
construction firms to accelerate building and hiring.
The broad-based housing improvements appear to be
buoying consumer confidence and spending, countering fears earlier this year
that many consumers would pull back in response to government austerity
measures.
In January, the two-year-old payroll tax holiday
ended, stripping about $700 from the average household’s annual income,
according to the nonpartisan Tax Policy Center. Federal government spending cuts
that started in March are also serving as a drag on economic growth, economists
say. And some recent data on other parts of the economy, like manufacturing and
exports, have also disappointed.
Yet consumer confidence reached a five-year high in
May, according to a Conference Board report also released on Tuesday, with big
improvements in Americans’ views about both the current economy and future
economic conditions. Consumer spending has also been strikingly resilient so far
this year, given the tax hikes.
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The recent decline in gas prices is probably helping,
as are increases in the stock market even though only about half
of Americans own any equities. Perhaps most important, economists say, the
growth in the value of the existing housing stock means that homeowners around
the country are finally feeling richer, and that so-called wealth effect is
probably making consumers loosen their purse strings a bit.