Consumers feel more confident about finances and ready to spend money: survey

Americans feel more confident about their finances, to the extent that interest in buying a home jumped by nearly 15% in November 2023 compared to last year, despite the challenging market conditions, a recent survey said.

Similarly, the share of consumers who expect to buy a car in the next six months is roughly 16% higher in December 2023 compared to last year, according to the WalletHub survey. This comes even as auto prices and the cost to insure them surged throughout the year.

The increased interest in making these big purchases mirrors consumers' improving optimism about their finances. The WalletHub Economic Index increased by 15% between December 2022 and December 2023. This means consumers are more confident about their financial outlook this month than they were at the same time last year. Consumers' six-month outlook on their finances reached the highest level of optimism recorded since December 2020, the survey said.

"The 15% increase in consumer sentiment over the past year is an encouraging sign that our economy is recovering from the damage it suffered as a result of the pandemic and inflation," WalletHub Analyst Cassandra Happe said. "People who have high financial confidence are likely to spend more money and reduce their debts, both of which are good for the economy as a whole."

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Inflation moderating, interest rates may drop

The latest figure for inflation shows that it continues to moderate. The November Consumer Price Index (CPI) showed inflation rose 3.1%, down from 3.2% the previous month. Meanwhile, the Federal Reserve has eased on interest rate hikes and indicated that it may be open to lowering rates as soon as this quarter, with interest rates expected to tick down to 4.6%, according to the central bank's updated economic forecasts in its Summary of Economic Projections (SEP).

A drop in interest rates could help improve consumer borrowing costs on major purchases like homes and cars. The 30-year mortgage has dropped to the 6% range after nearly topping 8% in November. The expectation is that as interest rates reverse, mortgage rates will continue to moderate. The Mortgage Bankers Association is forecasting a 6% increase in existing home sales and a 10% jump in new home sales in 2024, fueled by more inventory coming on the market and slightly lower mortgage rates.

Also lower was the amount Americans pay to finance a new car or annual percentage rate (APR) for longer-term loans in Q4, according to a recent Edmunds report.

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Consumers plan to reduce debt

The share of consumers who expected to have less debt after the next six months increased by 4.4% in December 2023 compared to last year, the survey said. In addition, consumers' confidence in reducing their debt over the next six months has hit the highest level recorded since December 2020.

The improved optimism comes even as a record number of Americans carry a credit card balance from month to month. Americans now owe $1.08 trillion on their credit cards after racking up a collective $48 billion in new spending during the third quarter of 2023, according to a recent report on household debt from the Federal Reserve Bank of New York. Moreover, roughly one-third of respondents in a recent PYMNTS and LendingClub survey said they reached their credit card limit, an average of $9,200, at least occasionally, in 2023.

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