Economic First Look: Modest Housing Recovery Takes Hold

 | Nov 17, 2012 | 10:00 AM EST
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  • Existing Home Sales, 10 a.m. (all times EST)
  • Housing Market Index, 10 a.m.


  • Housing Starts, 8:30 a.m.
  • Jeffrey Lacker, President of the Richmond Federal Reserve, speaks, 9 a.m.
  • Ben Bernanke, Chairman of the Federal Reserve, speaks, 12:15 a.m.


  • Jobless Claims, 8:30 a.m.
  • Consumer Sentiment (University of Michigan measure), 9:55 a.m.
  • Leading Indicators, 10 a.m.
  • Energy Information Administration Petroleum Status Report, 10:30 a.m.


  • Happy Thanksgiving!


  • Markets close early

This trading week is shortened because of the holiday, so expect low volume in the indices. Three housing indicators are on tap, but these might not move markets unless they post "unusual" results. Data will otherwise be light. However, Federal Reserve Chairman Ben Bernanke is scheduled to speak Tuesday.

Bernanke's speech to the Economic Club of New York includes 20 minutes of a question-and-answer sesson afterward, so pay attention not just to his prepared remarks but what might come up in the later discussion. A transcript of his speech, but not the discussion, is available from the Federal Reserve, and will be released when his speech begins. This does have the potential to capture investors' interest more broadly than do the economic data this week.

Meanwhile, housing seems to have taken some steps toward recovery. This week, we're due to receive the existing-home-sales index. This is based on contract closings, which occur a month or two after contracts are signed.

The National Association of Realtors' lesser-followed index, the pending-home-sales index, measures sales at signing. As a result, it leads the existing-home-sales report.

Regarding pending-home sales, NAR said the forward-looking index "showed a very small rise in September, just 0.3%, but it's one more data point to suggest the recovery is solidly underway even if it remains modest."

Existing-home sales have improved a bit of late. Back in September, after two prior months of strong growth, the number had fallen 1.7% to a 4.75 million annual rate. Yet that was still the second-best annual rate since the stimulus programs in the spring of 2010.

Last month, we learned about two key metrics that indicate a stronger housing market had improved once again. Inventory is dropping: The supply of homes available for sale is now at 5.9 months -- the first time in a number of years that the number has dropped below 6 months. This is at the level that generally indicates a housing market balanced between buyers and sellers.

Total inventory stands at 2.32 million units. Time on the market has dropped to a median 70 days, with roughly one-third of all sales closing in 30 days or so. At this time last year, the median time on the market had been more than 100 days, so the trend is positive.

Meanwhile, employment is increasing and consumer confidence is now at its recovery highs. At the mid-month reading, the consumer sentiment headline index from the University of Michigan is up 2.3 points to another recovery best of 84.9, the highest since July 2007.

The current-conditions metric is especially strong, coming in at 91.3 compared to October's final reading of 88.1. The expectations component is up nearly 2 points to 80.8. All of these readings are at their highest levels since the recession ended.

In the separate consumer confidence report from the Conference Board, the headline measure is at its highest since February 2008. In the report, we also see that 5.3% of Americans plan to buy a house in coming months, up from 4.4% a year ago.

A combination of increased employment, stronger confidence and low inventories of houses for sales has meant rising prices. The S&P/Case-Shiller Home Price Index, a measure of same-house sales in 20 cities, posted a year over year gain of 2% in August following a 1.2% price increase in July.

Price increases in the past two months have been strong, with gains of 0.9% from July to August and 1.6% for June to July. House prices are now 8.5% above their early 2012 lows, according to these metrics.

Regarding this release, David Blitzer, chairman of the index committee at S&P Dow Jones Indices -- which publishes the index -- had this to say:

"The sustained good news in home prices over the past five months makes us optimistic for continued recovery in the housing market. News on home prices confirms other good news about housing. Single family housing starts are 43% ahead of last year's pace, existing and new home sales are also up, the inventory of homes for sale continues to drop and consumer mortgage default rates are reaching new lows."

NAR also reports rising prices for existing homes sold. These do not measure same-house price changes, but rather average levels that can be skewed by the mix of houses sold. In that report, we see that the median price, at $183,900, is up a strong 11.3% from year-ago levels. Part of that increase stems from the mix of houses being sold today.

NAR notes that fewer distressed sales as a percentage of the market have helped increase average prices. As a result, this index will diverge from the Case-Shiller index, a same-house index that measures the changes in price at which individual houses are sold, compared with each house's previous sales price.

At the same time, builders have become more optimistic. Builder confidence in the market for newly built, single-family homes edged slightly higher for a sixth consecutive month in October, according to the National Association of Home Builders/Wells Fargo Housing Market Index. The latest, 1-point gain, brings the index to 41 -- the strongest level since June 2006.

Note, however, that readings above "50" indicate optimism, whereas readings below this threshold are are more pessimistic. Still, this is a substantial improvement from readings during the recession, which had gotten to as low as 8 in January 2009.

In last month's NAHB Housing Market Index, chairman Barry Rutenberg said, "Many builders are reporting increases in the number of serious buyers visiting their sales offices, and the overall confidence measure is much higher than it was at this time last year." The organization notes tight credit is still affecting home sales, however. We will see if the latest report, due Monday, continues to show rising optimism.

Bottom line: Housing appears to be posting a moderate recovery.

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