Economic First Look: Positive Vibes in Housing

 | Dec 22, 2012 | 10:09 PM EST  | Comments
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Monday

  • Markets close early

Tuesday

  • Markets closed for Christmas

Wednesday

  • S&P Case-Shiller Home Price Index
  • Richmond Federal Reserve Manufacturing Survey, 10 a.m.

Thursday

  • Jobless Claims, 8:30 a.m.
  • New Home Sales, 10 a.m.
  • Consumer Confidence, 10 a.m.
  • Energy Information Administration Petroleum Status Report, 11 a.m.

Friday

  • Chicago Purchasing Managers Index, 9:45 a.m.
  • Pending Home Sales Index, 10 a.m.

On this holiday-shortened week, trading volumes will of course be rather light. The economic data this week include some housing-related reports, but otherwise there won't be a great deal of top-tier economic data. So enjoy the holiday or simply take some time off.

In any case, Wednesday will see data on home prices, Thursday we'll have data on new-home sales and Friday will brings a report on existing-home sales in the form of the pending-home-sales report. Recall that, with the existing-home-sales report from the National Association of Realtors, a home is reported as sold when a contract is closed. By contrast, in the new-home-sales report, the Census Bureau reports a home as sold when a contract is signed -- closing can take a month or two after that, and sometimes not at all. So existing-home-sales data are "better" because cancellations are less of an issue, but the new-home-sales numbers are timelier. The pending-home-sales report attempts to make up for that time delay, though, and reports sales of an existing home when a contract is signed.

Here's what we know. Sales of existing homes rose 5.9% to a seasonally adjusted annual rate of 5.04 million in November from the 4.76 million recorded in October, and are 14.5% higher than the 4.4-million-unit pace in November 2011. That's the highest level since November 2009, when the annual pace spiked at 5.44 million.

Lawrence Yun, chief economist for Realtors Group, said, "Momentum continues to build in the housing market from growing jobs and a bursting out of household formation." He added, "With lower rental vacancy rates and rising rents, combined with still historically favorable affordability conditions, more people are buying homes. Areas impacted by Hurricane Sandy show storm-related disruptions but overall activity in the Northeast is up, offset by gains in unaffected areas." I won't disagree with him, as I do see the housing market is powering ahead, but I don't think I've ever heard Yun say much that wasn't upbeat, whether conditions have been good or bad.

But we don't only need to ask someone who sells houses for a living; we can also ask folks who build houses to see improvement in the sector. The National Association of Home Builders' sentiment metric came in slightly more pessimistic than optimistic, but it has posted gains for eight consecutive months since the depths of the recession, when the metric was in the single digits. It's now at 47, just a shade below the threshold of 50 that separates a greater proportion of more optimistic vs. cautious responses to the survey. This number hasn't come in above 50 since April 2006.

As with Realtors, the NAHB emphasizes rising rates of household formation in their forecasts. The NAHB forecasts single-family home production to climb to 534,000 units this year, up 23% from 2011. In the coming year, the NAHB is forecasting that single-family new-home construction will post a 21% gain in 2013 to 647,000 units. While I hesitate to look too far ahead, the NAHB forecasts starts will continue their upward climb in 2014, posting a further 29% rise to 837,000 units.

You could argue that maybe people are renting instead of buying -- and, again, the NAHB forecasts gains in the multi-family market, given new households. Multifamily construction is expected to rise 31% in 2012, reaching 233,000 new units, and a 16% gain is anticipated in 2013 to 270,000 units. As usual, I am hesitant to rely on forecasts as far in advance as 2014 -- but, that said, the group sees multifamily starts rising an additional 9% in 2014 to 294,000 units.

A bit puzzling, however, is why the group expects so many more starts than sales of new homes. Case in point: The NAHB sees new single-family home sales rising from 307,000 last year to 367,000 this year, a gain of 20%. Sales are anticipated to climb to 447,000 in 2013, up 22% from 2012, and a jump to 607,000 is expected in 2014 -- a 36% increase above 2013 levels. Go back and compare these sales figures for the new-home production cited above, and you'll see what I mean. That said, inventory figures are fairly low, so it might make sense to increase housing production more than purchases, so as to allow for greater buyer choices. The market can, after all, tolerate some higher inventory levels.

In the meantime, in the recent report from Realtors, lower inventories of single-family homes probably constituted one of the factors that drove existing-home prices higher. Here we see that the national median existing-home price for all housing types was $180,600 in November, up 10.1% from November 2011. This is the ninth month in a row that saw price gain vs. the prior year. The last time prices rose for this many straight months was during the housing boom, from September 2005 to May 2006.

Of course, the S&P/Case-Shiller Index we receive this week measures repeat sales of the same home, whereas the existing-home-sales report from Realtors measures the midpoint of sales, both nationally and by region. The measure from Realtors can be skewed by the mix of houses sold, so it's not the best measure of the typical homeowner's net-worth situation. Instead, use this week's Case-Shiller data for a better price inflation metric.

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