WASHINGTON (AP) -- An index that tracks signed contracts to purchase existing homes rebounded in December, as buyers snapped up properties at deep discounts, especially in the South and Midwest.
It was the second positive sign in the past two weeks for the troubled U.S. housing market, and may indicate that a bottom is forming -- at least for home sales. Analysts, however, caution that prices are likely to keep falling through 2009, and say the outlook for home sales is uncertain, especially as layoffs mount and banks' lending standards remain tight.
"Buyers are dipping their toes back into the housing market, but they have yet to really take the plunge," wrote Joel Naroff, chief economist with Naroff Economic Advisors.
The National Association of Realtors said Tuesday its seasonally adjusted index of pending sales for previously owned homes for December rose 6.3 percent to 87.7 from an upwardly revised November reading of 82.5, which was lowest month on record. That's better than the 82.3 reading economists expected, according to a survey by Thomson Reuters.
The reading also was up 2.1 percent from December 2007.
Typically there is a one- to two-month lag between a contract and a done deal. Home sales that were pending in December are likely to be completed in the coming weeks.
After the stock market crashed last fall, sales of existing homes plunged in October and November, but recovered in December. Tuesday's pending home sales report indicates January sales data, to be released later this month, may look good too.
While lower prices and lower mortgage rates appear to be boosting demand, the timing of a housing market turnaround is likely to depend on how far the overall economy sinks.
"Eventually, the positives will outweigh the negatives," said Pierre Ellis, senior economist with Decision Economics in New York. "Hopefully, that will be reasonably soon and we'll have the beginnings of a recovery."
Even when that happens, most economists expect home prices will increase slowly.
In the Realtors' report, pending home sales increased about 13 percent in the South and Midwest, but fell almost 4 percent in the West and about 2 percent in the Northeast.
The Realtors group, normally known for its optimistic view of the housing market, is now cautioning against getting too enthusiastic about any recovery -- as it lobbies hard for new government tax credits to boost home sales.
"Significant uncertainty still clouds the housing market despite improved affordability conditions," Lawrence Yun, the group's chief economist said in a statement. "For a sustainable housing market recovery and, hence, sustainable economic recovery, we need a significant housing stimulus."
Of course, the U.S. housing market is still coping with the worst downturn in decades, and much of the country remains weak.
Sales of newly built homes plunged to the slowest pace on record in December and builders posted their worst annual sales results in more than two decades, the government said last week.
On Tuesday, D.R. Horton, the nation's biggest homebuilder, said it lost almost $63 million in its most recent quarter as sales slumped by half.
Concern about the health of the housing market, which triggered the recession, is driving a plan by Senate Republicans to push down the cost of mortgages. The plan could be included in the economic stimulus bill at the top of President Barack Obama's agenda.
Republicans on have been coalescing behind a proposal designed to give banks an incentive to make loans at rates currently estimated at 4 percent to 4.5 percent. Mortgage finance companies Fannie Mae and Freddie Mac, which were seized by the federal government in September, would be required to purchase the mortgages once banks have made them to consumers.
Officials said loans to creditworthy borrowers on primary residences with a mortgage of up to $625,000 would qualify, including those seeking to refinance their current loans. Republican officials also intend to press for a $15,000 tax credit for homebuyers through the end of the year.
Alan Zibel, AP Real Estate Writer
Tuesday February 3, 2009, 1:45 pm EST
Wednesday, February 4, 2009
Wednesday, January 14, 2009
Intense Period of Recession is Behind Us...
Friday's jobs report was awful, but contrary to popular belief does not signal the death of the consumer. This notion--that fewer people working means less consumption--has become conventional wisdom. And those who believe this think government "stimulus" is the only way to prevent an economic bloodbath.
It's easy to get dour in the current economic environment. Along with the sharp decline in jobs during December, total hours worked plummeted 1.1%, in large part due to a sudden spike upward in the number of workers who want to work full-time but who can only find part-time jobs. Except for an unusual East Coast blizzard in 1996, this was the biggest drop in total hours worked since 1982. And since December saw some of the worst snowstorms to hit the U.S. in decades, it is possible the weather again played a role.
Despite this, hourly wages rose 0.3% in December and were up 3.7% from December 2007. With the Consumer Price Index (CPI) expected to decline by 1.2% in December (data released this Friday), real (or, inflation-adjusted) wages likely increased 1.5%. Moreover, those real wages are likely up 4.8% from a year-ago, the fastest increase since 1972.
In addition, the real purchasing power of workers' cash earnings (total hours multiplied by real hourly earnings) actually increased by about 0.3% in December, putting it about 0.1% ahead of where it was a year ago. In other words, declines in energy prices, as well as some other prices, have roughly offset the damage to consumer purchasing power caused by job cuts and fewer hours for the remaining workforce.
Surely, major job cuts will continue to put downward pressure on earnings for at least the next few months. However, the decline in gasoline prices alone is saving consumers $410 billion in annual expenditures. In size, on an annual basis, this is similar to the government "stimulus" measures now under consideration. And instead of the money being allocated along political lines, sometimes by cumbersome bureaucracies, the money immediately gets into consumers' pockets. The drop in energy prices, which will keep the CPI in negative territory for months to come, combined with moderate wage gains (generated by productivity growth), will continue to offset any decline in purchasing power due to falling employment.
Meanwhile, despite the fear (some of which is stoked by political salesmanship) that the U.S. faces the worst economic crisis since the Great Depression, initial claims for unemployment insurance have fallen dramatically, from 589,000 the week before Christmas to 467,000 in New Year's week. If initial claims come in for last week at the consensus-expected 501,000, the four-week moving average would be down to 512,000, the lowest since November.
These figures signal that the most intense period of the recession is behind us, not in front of us. Any "stimulus" applied by government has less to do with creating the recovery than letting politicians take credit when the recovery happens.
Brian S. Wesbury is chief economist, and Robert Stein senior economist, at First Trust Advisors in Lisle, Ill. They write a weekly column for Forbes.com.
It's easy to get dour in the current economic environment. Along with the sharp decline in jobs during December, total hours worked plummeted 1.1%, in large part due to a sudden spike upward in the number of workers who want to work full-time but who can only find part-time jobs. Except for an unusual East Coast blizzard in 1996, this was the biggest drop in total hours worked since 1982. And since December saw some of the worst snowstorms to hit the U.S. in decades, it is possible the weather again played a role.
Despite this, hourly wages rose 0.3% in December and were up 3.7% from December 2007. With the Consumer Price Index (CPI) expected to decline by 1.2% in December (data released this Friday), real (or, inflation-adjusted) wages likely increased 1.5%. Moreover, those real wages are likely up 4.8% from a year-ago, the fastest increase since 1972.
In addition, the real purchasing power of workers' cash earnings (total hours multiplied by real hourly earnings) actually increased by about 0.3% in December, putting it about 0.1% ahead of where it was a year ago. In other words, declines in energy prices, as well as some other prices, have roughly offset the damage to consumer purchasing power caused by job cuts and fewer hours for the remaining workforce.
Surely, major job cuts will continue to put downward pressure on earnings for at least the next few months. However, the decline in gasoline prices alone is saving consumers $410 billion in annual expenditures. In size, on an annual basis, this is similar to the government "stimulus" measures now under consideration. And instead of the money being allocated along political lines, sometimes by cumbersome bureaucracies, the money immediately gets into consumers' pockets. The drop in energy prices, which will keep the CPI in negative territory for months to come, combined with moderate wage gains (generated by productivity growth), will continue to offset any decline in purchasing power due to falling employment.
Meanwhile, despite the fear (some of which is stoked by political salesmanship) that the U.S. faces the worst economic crisis since the Great Depression, initial claims for unemployment insurance have fallen dramatically, from 589,000 the week before Christmas to 467,000 in New Year's week. If initial claims come in for last week at the consensus-expected 501,000, the four-week moving average would be down to 512,000, the lowest since November.
These figures signal that the most intense period of the recession is behind us, not in front of us. Any "stimulus" applied by government has less to do with creating the recovery than letting politicians take credit when the recovery happens.
Brian S. Wesbury is chief economist, and Robert Stein senior economist, at First Trust Advisors in Lisle, Ill. They write a weekly column for Forbes.com.
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