The Gradual Firming in Housing Is Building a Floor for the Economy
- Existing Home Sales for April increased by 3.4 percent, to a 4.62 million unit sales rate.
- The Richmond Fed’s Survey of Manufacturing Conditions for May showed gains in that region.
- The Chicago Fed’s National Activity Index increased for April.
Housing-related data continue to show improvement in the aftermath of a once-in-a-generation meltdown. Prices are stabilizing, sales are gradually increasing and construction is starting to come back. The gains are still small measured against the losses subsequent to the boom years of the mid-2000’s (which seem like a hundred years ago). But most importantly, the gains in housing are broadening the still-weak expansion to Main Street, and are providing a measure of positive news for many U.S. households. The nascent gains to housing, ongoing momentum in labor markets, strength in auto sales and now falling gasoline prices are providing a degree of insulation for Main Street America from the daily onslaught of bad news from Europe and elsewhere. To a certain extent, that insulation is self-fulfilling; endogenous momentum in the U.S. is feeding badly starved animal spirits, which are helping to fuel more endogenous private-sector growth. A key challenge to the U.S. economy, in addition to headwinds from Europe, is the upcoming “fiscal cliff,” scheduled to hit in early 2013. The fiscal cliff is the combination of effective tax increases and federal spending cuts already scheduled for early 2013 unless Congress acts to modify existing law. We assume that the combination of endogenous private-sector growth, and legislative action rounding off the shoulders of the fiscal cliff, allow the U.S. economy to continue to grow through early 2013 and then increase in momentum through the rest of the year.
Existing home sales increased by 3.4 percent in April to a 4.62 million unit rate, just below January’s recent weather-aided high of 4.63 million units annualized. Condo sales helped the most, gaining 6.0 percent for the month, while single-family home sales increased by 3.0 percent. Condo markets are still loose, but appear to be tightening up more quickly than the single-family market. The median sales price of a used condo is up 8.1 percent from a year ago. Existing single-family home prices are up 10.4 percent from a year ago according to the National Association of Realtors. The NAR price data does not adjust for the size of the house, so more sales of larger homes may be boosting prices now. The Federal Reserve Bank of Richmond’s Survey of Manufacturing Conditions showed a sixth consecutive monthly expansion in the central Atlantic region. The index ticked down to 4 in May, still positive but showing slower gains than in March or April. The Chicago Federal Reserve Bank’s National Activity Index for April increased by 0.11, after falling in March. The Chicago Fed index is a very broad index with leading, coincident and lagging components designed to measure the relative strength of the national economy. A positive reading means above average growth.
Market Reaction: Equity prices are up. Treasury yields are up at the long end of the yield curve. Oil is down to $92.57/barrel. The dollar is up against the yen and the euro.