Sentiment Falls for a Third Straight Month
The University of Michigan's preliminary Index of Consumer Sentiment for October, released October 9, came in at 46.3, down from 48.1 in September and 53.6 a year earlier, a decline of 3.7% on the month and 13.6% on the year according to the university's own published table. Survey director Joanne Hsu said sentiment was little changed this month, inching down a scant 1.8 index points from September, as increases in sentiment among Democrats and Republicans were offset by a decline among independents.
The current economic conditions component fell more sharply, dropping to 44.7 from 50.9 the month before, a 12.2% monthly decline and a 23.7% drop from the 58.6 reading of October 2025, while the index of consumer expectations actually rose slightly, to 47.3 from 46.3. Hsu noted that buying conditions for durables plummeted amid high prices and borrowing costs, even as year-ahead expectations for personal finances and business conditions crept up slightly. Hsu added that sentiment for lower-income consumers and those with smaller stock portfolios dropped steeply, groups she described as having fewer resources to weather increases in prices.
Inflation Expectations Keep Climbing
Year-ahead inflation expectations rose to 4.7% in the preliminary October reading, up from 4.6% in September, while long-run inflation expectations ticked up to 3.5% from 3.4%, according to the university's survey. Hsu said the current reading substantially exceeds the 3.4% seen in February before the Iran conflict began, along with all 2024 readings, and that inflation expectations over both time horizons increased for the second straight month, with the long-run figure notably higher than its 2024 range of 2.8% to 3.2%.
Economists at PNC, reviewing the release, wrote that the long stretch of depressed consumer sentiment reflects a highly uncertain geopolitical backdrop, the recent surge in long-term interest rates, and elevated gas and energy prices. Other analysis of the same release highlighted that frustration over cost of living continued to mount, with consumers across the political spectrum saying they believe the economy's trajectory has weakened since the start of the year.
Why This Matters for Housing
Consumer sentiment readings are watched closely by housing economists because they tend to lead changes in big-ticket purchasing behavior, including homebuying. A household's willingness to take on a mortgage is shaped not just by the rate it is quoted but by its broader confidence in job security, future income and the direction of prices, all of which the Michigan survey tracks, and the survey's own commentary specifically flagged weakening buying conditions for durable goods, a category that includes homes and the appliances that go with them. That link between sentiment and housing demand is one reason economists tracking the mortgage market read the Michigan release alongside weekly rate surveys rather than in isolation.
As a labeled calculation: the October reading of 46.3 is 13.6% below the year-ago level of 53.6, a gap consistent with the percent change figure the university itself reported. With mortgage rates simultaneously near three-year highs, the combination of declining sentiment and rising borrowing costs points to continued caution among prospective buyers heading into the final months of the year. Final October results from the University of Michigan survey are scheduled for release on October 23.