The Economic Tug of War
- Existing Home Sales for December decreased by 1.0 percent, to a 5.9 million unit annual rate.
- The Median Sales Price of an existing home was up 11.5 percent from a year ago, according to the NAR.
The economic tug of war for the first half of 2013 has begun. As we get a more complete view of December economic data, and the data stream for January develops, we will be watching to see which side is winning. The household sector showed some momentum in late 2012 as real estate markets firmed up and auto sales improved. However, now opposing this momentum is fiscal drag from higher federal taxes (and in California, higher state taxes). This drag may ratchet up again if the federal spending sequester engages in March. In order for the push from residential real estate to continue through 2013 home sales must increase. Existing homes sales trended up through 2012. However, the official data show that new home sales did not increase through the year, but were stuck in the range of 360,000 to 380,000 units (annual rate) for most of the year. Moribund new home sales will not support ongoing gains in house construction. Some economists believe that new home sales data is under-reported and will eventually be revised up to show gains more in line with the construction numbers. December new home sales data is due out this Friday morning. Today we got an indication of softer real estate markets in December as existing home sales fell slightly. Existing home sale declined by 1.0 percent to hit an annual rate of 4.9 million units in December, and November existing homes sale were revised down. The good news is that inventories remain tight at 4.4 months’ worth and prices are firm. The median price of an existing home was up 11.5 percent from a year ago according to the National Association of Realtors. As of today, the side of fiscal drag gained an inch in the economic tug of war versus housing momentum. This is consistent with our expectation of weak, but positive real GDP growth in the range of 0.9 percent for the current first quarter of 2013.
According to the Federal Reserve Bank of Richmond, manufacturing activity contracted in January in the region from Maryland through South Carolina. Nearly all broad indicators of activity fell in January. Score another inch for fiscal tightening.
Market Reaction: Equity prices are down. Treasury yields are up. NYMEX crude oil is up to $95.71/barrel. The dollar is down against the yen and up versus the euro.
Click here for a PDF version of the Comerica Economic Alert: Home Sales 012213.