Choppy progress in housing
Reports out this week showed the housing market taking two steps forward and one step back. New- and existing-home sales numbers dipped after strong showings in November. But for 2012 as a whole, both home prices and total sales rose significantly, confirming that a recovery’s taking place in the housing market. So despite the December blips, the general trend in housing is positive and this sector is now making modest but positive contributions to headline GDP growth.
For the week ended January 25, 2013, the S&P 500 Index was up 1.1% to 1,503 (for a year-to-date total return—including price change plus dividends—of about 5.5%). The yield on the 10-year U.S. Treasury note was up 11 basis points to 1.98% (for a year-to-date increase of 20 basis points).
Existing-home sales edge lower
Annualized sales of previously owned homes were 4.94 million in December. While that represents a drop of 1% from a revised 2012 high of 4.99 million in November, it was 12.8% higher than a year earlier. Historically low interest rates, an improving job market, and a growing number of households were positive for housing in December. Inventory shrank from 4.8 months of supply to 4.4 months—its lowest level since 2005.
In 2012, 4.65 million previously owned homes were sold, the fastest annual pace since 2007. Compared with a year earlier, the drop in inventory, along with a decrease in the percentage of distressed properties (which include foreclosures and short sales), helped push the national median home price up 11.5% to $180,800 in December. By region, existing-home sales were up by double-digit rates compared with a year earlier everywhere except in the West, where they rose by 8.8%.
New-home sales dip as well
Sales of new single-family homes slipped by 7.3% in December compared with the previous month, to an annualized 369,000. Regionally, only the Midwest bucked the downward trend. While the December figure was below analysts’ expectations, sales for November were revised upward from an annualized 377,000 to 398,000, the highest level posted in almost three years. A pickup in homebuilding contributed to the number of new homes on the market, inching up from 4.5 months of supply in November to 4.9, but that still represents a tight level of inventory.
December’s figure put new-home sales for 2012 at 367,000. Although that’s still far from historical levels, it’s nearly 20% higher than the figure for 2011 and marks the first annual gain since 2005. The median new-home price is up substantially as well: At $248,900, it’s almost 14% higher than it was a year earlier.
Leading economic indicators suggest stronger growth ahead
December saw an overall increase of 0.5% in an index of ten economic indicators The Conference Board uses to assess the outlook for economic activity over the coming three to six months. The reading for November was also revised upward to 0% from –0.2%.
The rise in December was better than expected but narrowly focused, with much of the improvement caused by a drop in new claims for unemployment benefits. Stock market gains and an increase in building permit applications also pointed to stronger growth, although tempering the outlook were slips in consumer expectations and manufacturing orders.
The economic week ahead
Next week’s reporting schedule is heavy: durable goods on Monday and consumer confidence on Tuesday, followed by the first estimate of fourth-quarter gross domestic product and a statement from the Federal Reserve’s January meeting on Wednesday. Thursday brings reports on wages and personal income; the week ends with construction spending, employment numbers, and a gauge of manufacturing activity.
Source: The Vanguard Group Inc.