Economic First Look: Housing Cheer

 | Jan 19, 2013 | 9:30 AM EST  | Comments
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Monday

  • Martin Luther King, Jr. Day -- All Markets Closed

Tuesday

  • Chicago Federal Reserve National Activity Index, 8:30 a.m. (all times EST)
  • Existing Home Sales, 10 a.m.
  • Richmond Federal Reserve Manufacturing Index, 10 a.m.

Wednesday

  • Federal Housing Finance Agency House Price Index, 9 a.m.

Thursday

  • Jobless Claims, 8:30 a.m.
  • Flash Manufacturing Purchasing Managers' Index, 8:58 a.m.
  • Leading Indicators, 10 a.m.
  • U.S. Energy Information Administration Petroleum Status Report, 10:30 a.m.
  • Kansas City Federal Reserve Manufacturing Index, 11 a.m.

Friday

  • New Home Sales, 10 a.m.

This holiday-shortened week will see the release of housing statistics, but will otherwise be relatively light in terms of economic data. The Chicago Federal Reserve National Activity Index, scheduled for Tuesday morning, is one of my favorite gauges of broad, nationwide economic activity. It is also published on a monthly basis, unlike the quarterly frequency of the gross domestic product report. Since this week will see data on sales of both new and previously owned homes, let's take a closer look at housing.

For existing-home sales, we can turn to the November pending-home-sales index from the National Association of Realtors. Recall that, in the NAR existing-home-sales report, the sale of a previously occupied house is recorded when the contract closes -- and that can occur a month or two after the contract is signed. For the pending-home-sales index, the sale is recorded when a contract is signed, though not all of these will close. This index is designed by the NAR to be as timely as the new-home-sales report, which is recorded when a contract is signed and reported by the Census Bureau.

To look at sales of existing homes this week, we will want to glance back to when contracts were likely signed, per the pending-home-sales report. After a lag of a month or two, some of these home sales might close and be reported in this week's data. For November's pending home sales, signed contracts increased by 1.7% sequentially, and 9.8% year over year. Based on these and other data, the consensus expectations for December are for some 5.1 million existing-home sales, up from November's 5.04 million.

In the pending-home-sales report, sales varied by region -- and the numbers increased the most in the Northeast, rising 5.2% month to month in November, extending on October's gain. In the West, contracts to buy previously occupied homes rose by 4.2%. Pending-home sales increased only a hair in the Midwest -- up just 0.1% from the previous month -- while those in the South were unchanged. Apparently, Hurricane Sandy did not adversely affect home sales in the Northeast, though we cannot know how high activity would have been otherwise.

We might infer that sales of new homes followed a similar trend. There are differences, however, in the proportion of total home sales by region that new construction occupies. The consensus expectations are for new-home sales to increase by about 390,000 in December, following 377,000 new homes sold in November.

It shouldn't be too surprising that more new homes were selling -- the National Association of Home Builders has been growing steadily more optimistic, especially throughout the second half of 2012. Homebuilder confidence held steady in January 2013, as the NAHB housing market index remained at 47; yet this was the highest level seen since April 2006. The current and future sales indices are still hovering around the neutral threshold of 50, which indicates equal percentages of optimistic and negative responses.

Increased builder optimism is encouraging news, as it tends to coincide with more home construction, which adds to GDP. Sales of existing homes, by contrast, don't raise economic output directly, other than by boosting the commissions of real estate agents.

With builders more encouraged about future prospects now than they have been in previous years, new residential construction can contribute more to GDP. On a percentage basis, real residential construction constitutes 2.5% of GDP. Some analysts estimate that new residential construction could add as much as 0.5% to GDP in coming quarters, coinciding with a roughly 20% increase in housing starts over the next year. This week, we will find out if builders are selling more of the houses they have already built.

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