Home Sales Warming Up, Catalyzed by Job Growth, Prices Still Soft
- Existing Home Sales for January increased by 4.3 percent, up to a 4.57 million unit sales rate.
- The Median Sales Price for an existing home was down 2.0 percent in January from a year ago.
- New Home Sales for January fell by 0.9 percent, to a 321,000 unit pace. Recent data was revised up.
- The FHFA’s Purchase-Only House Price Index fell by 0.1 percent in the fourth quarter of 2011.
- Initial Claims for Unemployment Insurance were unchanged for the week ending Feb. 18, at 351,000.
Residential real estate markets tightened up in January, very good news, as both new and existing home sales showed improvement. Existing home sales increased by 4.3 percent in January, to a 4.57 million unit sales rate; the fastest sales rate since May 2010. New home sales actually decreased by 0.9 percent in January, but the level for December was revised up, so new home sales hit a stronger-than-expected annual rate of 321,000 units in January. Also, even with the dip in new home sales for January, the trend since mid-year 2011 is going in the right direction. The budding strength in home sales is consistent with the stronger job creation that began in late 2011 and looks like it is carrying over into early 2012. Given the current very high affordability of houses, job creation is the catalyst that can start a reaction in housing markets. Initial claims for unemployment insurance maintained recent gains, holding at 351,000 for the week ending February 18. With UI claims comfortably below 400,000 we can start to expect a little more out of the monthly payroll employment numbers. February could easily show another 2 handle on jobs, with a payroll print of about 200,000. Some analysts are looking for as many as 300,000 jobs per month in the coming months, based on the favorable claims data. Given the surge in the household employment survey in January we might not see visible improvement in the unemployment rate in February, but the unemployment rate really doesn’t matter to housing markets—it’s all about job creation. Jobs generate income, provide confidence, and require relocations.
Despite nascent improvement in home sales prices remain soft. The median price of an existing home sold in January was 2.0 percent below the previous January. The Federal Housing Finance Agency (FHFA) released their fourth quarter 2011 purchase price index of homes with mortgages acquired by Fannie Mae and Freddie Mac (homes with conventional mortgages). It was 0.1 percent lower in the fourth quarter compared to the third. Compared with the fourth quarter of 2010, the FHFA index is down 2.4 percent. The bad news in this story is that house prices remain weak in most markets. But there is good news, too, and that is that the rate of house price declines appears to be easing. This provides a glimmer of hope we may be at the beginning of the end of our latest long national nightmare, the housing crisis of 2007-2012. Again, job creation is the key.
Market Reacton: Equity markets opened with gains, extending their rally. Treasury yields are down. Oil is up to $108.14/barrel. The dollar is up against the yen and down versus the euro.