Consumer expectations that the Trump administration's pro-business and anti-tax policies would give a big boost to the economy have eroded in recent months as legislation has stalled in Washington. While consumers feel good about their current personal financial situation, they are less optimistic about the short-term economic outlook and more concerned about what a sluggish economy may mean for their future prospects.

This ambiguity is having a cooling effect on parts of the housing market — especially among renters and less affluent first-time buyers — that could ripple across the industry.

Consumer sentiment, like home-buying patterns, tends to fluctuate from month to month, and often is affected more by perception than fact.

Over the past several months, for example, the Conference Board's Consumer Confidence Index has vacillated up and down slightly, while consumer spending — another indicator of confidence — has been increasing. Similarly, Fannie Mae's Home Purchase Sentiment Index (HPSI) has recorded fluctuations month-to-month in consumers' feelings about their personal finances, employment prospects and ability to afford a home purchase.

Taking a longer view, however, a more consistent trend emerges. Gallup reports that its U.S. Economic Confidence Index, while remaining in positive territory, has been in decline since the beginning of the year and fell to its lowest point so far in June, at +3, compared to a high of +11 in January. Likewise, the University of Michigan's Index of Consumer Sentiment, although generally favorable, has slipped to its lowest point since after the election in November.

The biggest drop was in the Index of Consumer Expectations, which rose nearly 5 points in May but fell back almost 4 points in June, indicating greater uncertainty about the future growth of the economy. In its latest Housing Opportunity and Market Experience (HOME) survey, the National Association of Realtors reports that respondents to the second-quarter 2017 survey expressed less confidence about the economy's likelihood of improving and their personal financial prospects in the next six months than in the first quarter as well as compared to a year ago.

Rising home prices and competitive purchasing due to tight inventories have masked over the gradual erosion of prospective home buyers' hopes to become homeowners this year. Both Fannie Mae's HPSI and the NAR's HOME survey show a marked increase in homeowners' belief that now is a good time to sell their homes.

Consumers who feel good about their current financial situation, particularly in contrast to a year ago, are somewhat more optimistic about their ability to purchase a home. On the other hand, for a large number of would-be home buyers, concern that the economy is not accelerating as quickly as they had hoped, that home prices have increased at more than double the rate of household income, and that wages have not substantially gone up despite the job market facing near full employment is giving them second thoughts about looking to purchase a home this year.

Announcing that pending home sales in May slumped for the third month in a row throughout the country, and were down 1.7 percent from the same period last year, Lawrence Yun, chief economist for the NAR, noted "weaker financial and economic confidence [along with critically low inventory levels] could also be playing a role in the slowdown in contract activity."

An article in Construction Dive cited Conference Board data that the share of respondents to its Consumer Confidence Index who planned to purchase a home within six months decreased to 5.9 percent in June from to 6.1 percent in May. The article observes consumer confidence "could be waning when it comes to making a home purchase."

Even with a number of economic indicators showing positive economic activity, analysts recently adjusted their growth estimates for the year downward based on data from the first half of the year. With little hope that the gridlock in Washington will be resolved any time soon, economists foresee yet another year of modest rather than accelerated growth. That could translate to a less-than-robust second half of the year for the housing industry.