Economy Watch: Housing Market Gets Some Legs
- Feb 27, 2013
According to the S&P/Case-Shiller Home Price Indices released on Tuesday, all three headline composites ended 2012 with strong gains. The national composite posted an increase of 7.3 percent for 2012, while the 10- and 20-city composites reported annual returns of 5.9 percent and 6.8 percent respectively in 2012. Month-over-month, both the 10- and 20-city composites moved into positive territory with gains of 0.2 percent, more than reversing last month’s losses.
Some markets did very well indeed last year. Atlanta and Detroit posted their biggest year-over-year increases—9.9 percent and 13.6 percent, respectively—since the start of their indices in January 1991. Dallas, Denver and Minneapolis recorded their largest annual increases since 2001. Phoenix continued its climb out of the recessionary blues, posting a whopping year-over-year return of 23 percent, the result of eight consecutive months of double-digit year-over-year growth.
“Home prices ended 2012 with solid gains,” David M. Blitzer, chairman of the Index Committee at S&P Dow Jones Indices, noted in a press statement. “Housing and residential construction led the economy in the 2012 fourth quarter. Seasonally adjusted, there were no monthly declines across all 20 cities.”
New home sales up
The Census Bureau reported on Tuesday that new home sales in January were at an annualized rate of 437,000 units. That’s up 15.6 percent from the revised rate of 378,000 units in December.
That’s better than last year, or for that matter anytime since the recession began, except for the period of the first-time homebuyer tax credit, an artificial stimulus of the market. Historically, however, even an annualized rate of 437,000 is still low, and not just compared with the mid-2000s housing bubble, when a million or more new units rolled out in some years. During the 1960s, for instance, when there were fair fewer Americans to buy houses (and typically buyers needed 20 percent down), new home production hovered around 500,000 units per year.
Inventories, on the other hand, are in the “normal” range, or less than six months’ supply. The bureau’s estimate of new houses for sale at the end of January was 150,000, which represents a supply of 4.1 months at the current sales rate. Back in early 2009, the supply was just over 12 months.
Fed chairman talks of sequester
Federal Reserve Chairman Ben Bernanke warned Congress, in his most polite central banker-speak, about the sequester during his Semiannual Monetary Policy Report to the Congress on Tuesday. He first mentioned that, as a percentage of GDP, the federal budget deficit is in fact shrinking, headed down from 7 percent in fiscal 2012 to 2.5 percent in fiscal 2015.
Then the warning: “To address both the near- and longer-term issues, the Congress and the Administration should consider replacing the sharp, frontloaded spending cuts required by the sequestration with policies that reduce the federal deficit more gradually in the near term but more substantially in the longer run,” Bernanke said. “Such an approach could lessen the near-term fiscal headwinds facing the recovery while more effectively addressing the longer-term imbalances in the federal budget.”
Wall Street was “What me worry?” about the sequester on Tuesday, with the Dow Jones Industrial Average up 115.96 points, or 0.84 percent. The S&P 500 gained 0.61 percent and the Nasdaq advanced 0.43 percent.