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High confidence levels could boost consumer borrowing

Aug 03, 2013 Philip Burgess

While confidence dipped slightly in July, it still remained at a high level, which could boost consumer spending. Typically, when expenditures pick up, borrowing activity follows suit, so short term lenders might want to prepare for more business in the coming months.

The Conference Board Consumer Confidence Index fell to 80.3 in July from 82.1 in the previous month. However, the Present Situation Index jumped to 73.6 from 68.7, which signals that consumers are still confident in their personal financial situations.

"Consumer confidence fell slightly in July, precipitated by a weakening in consumers' economic and job expectations,' said Lynn Franco, director of economic indicators at The Conference Board. "However, confidence remains well above levels of a year ago. Consumers' assessment of current conditions continues to gain ground and expectations remain in expansionary territory despite the July retreat."

Overall, Franco said all indications show the economy is strengthening and could begin to pick up steam in the coming months.

Rising home prices driving consumer confidence
Home price appreciation has been on of the main forces behind a confident consumer. According to the Standard and Poor's/Case-Shiller Home Price Indices, both the 10- and 20-city composites increased in May, posting gains of 2.5 percent and 2.4 percent, respectively.

Both Dallas and Denver passed pre-recession records, marking the first time any city has made a new all-time high.

"Home prices continue to strengthen," said David Blitzer, chairman of the index committee at S&P Dow Jones Indices. "Two cities set new highs, surpassing their pre-crisis levels and five cities - Atlanta, Chicago, San Diego, San Francisco and Seattle - posted monthly gains of over three percent, also a first time event."

When compared to a year ago, all cities posted gains, with Atlanta, Las Vegas, Phoenix and San Francisco experiencing appreciation greater than 20 percent.

Jonathan Basile, an economist at Credit Suisse, told Bloomberg that price increases are expected throughout the summer months.

Borrowing activity could rise with high consumer confidence, increasing home prices
With favorable conditions for consumers, household wealth and personal financial situations are likely improving. As a result, borrowing activity could increase as consumers begin to spend more money. That being said, short term lenders should prepare staff for the potential of an influx of applications in the near future so no mistakes are made that could hold up the lending process.