Good Economic News

New Home Sales Data Point to Stabilizing Market
By Shobhana Chandra - Feb 24, 2012 9:22 AM CT

Purchases of new homes in the U.S. exceeded forecasts in January after climbing a month earlier to a one-year high, more evidence the housing market is stabilizing.

Sales, tabulated when contracts are signed, fell 0.9 percent to a 321,000 annual pace from a 324,000 rate in December that was stronger than previously reported, figures from the Commerce Department showed today in Washington. The median estimate of 77 economists surveyed by Bloomberg News called for a rise to 315,000. The number of homes for sale dropped to a record low.

Beazer Homes USA Inc. (BZ) and D.R. Horton Inc. (DHI) are among builders benefiting from job gains as well as cheaper properties and lower mortgage rates that have driven affordability to a record high. At the same time, foreclosures that depress prices remain a risk, one reason policy makers including Federal Reserve officials are seeking ways to bolster the industry.

“Sales are very low but are getting better,” said Patrick Newport, an economist at IHS Global Insight in Lexington, Massachusetts. “It’s a combination of an improving economy and labor market.”

Economists’ estimates ranged from 300,000 to 355,000. The rate for December was previously reported at 307,000, a decline of 2.2 percent.

Consumer Sentiment
Consumer sentiment this month unexpectedly climbed to a one- year high. The Thomson Reuters/University of Michigan final index for February rose to 75.3 from 75 at the end of January. Economists projected a reading of 73 after a preliminary February figure of 72.5.

Stocks extended gains after the reports. The Standard & Poor’s 500 Index climbed 0.2 percent to 1,366.38 at 10:22 a.m. in New York.

For all of 2011, builders sold 304,000 homes, down 5.8 percent from the previous year.

The recent pickup in sales has helped reduce inventory. There were 151,000 new houses on the market at the end of January, the fewest on record. The supply of homes at the current sales rate dropped to 5.6 months’ worth, the lowest since January 2006, from 5.7 months in December.

The median sales price decreased 9.6 percent in January from the same month last year to $217,100, today’s report showed.

By Region
Purchases fell in two of four U.S. regions, led by a 25 percent slump in the Midwest and an 11 percent drop in the West. Sales were up 11 percent in the Northeast and 9.3 percent in the South.

New-home sales, which are tabulated when contracts are signed, have lost their ability to forecast the broader market as demand shifts to previously owned houses. Purchases of existing houses are calculated when a deal closes about a month or two later. New properties made up almost 7 percent of the market last year.

Existing-home (ETSLTOTL) purchases rose to a 4.57 million annual rate, the National Association of Realtors reported this week. While it was the highest level since May 2010, distressed properties made up the largest portion of all purchases since April. The median price fell 2 percent to $154,700 last month from January 2011.

Demand is getting a boost as more homes become affordable. The Realtors group’s measure of whether households earning the median income can buy a median-priced property at current interest rates reached record levels in the last three months of 2011, recent data showed.

Warmer Weather
The fourth-warmest January on record may have helped sustain home buying. The National Oceanic and Atmospheric Administration reported the average temperature was 36.3 degrees Fahrenheit (2.39 degrees Celsius), 5.5 degrees above the 1901-2000 long-term average.

Among other housing data, builders broke ground on more homes than forecast in January, and permits also advanced. The National Association of Home Builders/Wells Fargo index of builder confidence climbed in February to the highest level since May 2007.

D.R. Horton, the largest U.S. homebuilder by volume, reported net home orders rose to 3,794 in the final three months of 2011, from 3,363 a year earlier. Beazer Homes said demand jumped 36 percent in that period, and closings on new houses surged more than 60 percent.

‘Gradually Improving’
“While our visibility into the economic conditions for the remainder of the year is limited, I believe that we will benefit from a gradually improving housing market,” Allan Merrill, chief executive officer of Atlanta-based Beazer, said on an earnings call on Feb. 2.

Bank of America Corp., JPMorgan Chase & Co. and three other U.S. banks reached a $25 billion settlement with 49 states and the U.S. government to end a probe of abusive foreclosure practices prompted by the collapse of the housing price bubble.

Fed Chairman Ben S. Bernanke has said the central bank’s efforts to spur growth are being blunted by impediments to mortgage lending, and called for more steps to heal housing.

“We need to continue to develop and implement policies that will help the housing sector get back on its feet,” Bernanke told homebuilders on Feb. 10 in Orlando, Florida.

 

S.&P. 500 at Highest Close Since ’08
By CHRISTINE HAUSER
Published: February 24, 2012

Friday’s optimism extended a rally of several months that on Friday pushed the Standard & Poor’s 500-stock index past its most recent high, set in April 2011. It then held on to its gains through to the close of 1,365.74, the highest since June 5, 2008, when it closed at 1,404.05.

But while stocks as a whole have clawed out of a deep hole over the past four years, some sectors, like technology and consumer companies, have done a lot better than others, like banks and utilities.

Still, analysts were cautious. Friday’s economic data showed upbeat economic reports. Home sales exceeded forecasts in the latest data for January, and while consumer sentiment increased at its slowest pace in six months, optimism about the long-term outlook was improving, according to the Reuters/University of Michigan Consumer Sentiment Index for February. But the economic impact of rising oil prices is still uncertain, and there are lingering concerns over a European recession and the staying power of the American economy.

“We have come a long way,” said Nigel Gault, the chief United States economist for IHS Global Insight. “But the overall economy is clearly not back to normal yet.”

“It does not mean the economy is out of the woods,” he added. “It means that we have had almost four years where if you held on in the stock market through the period you would be back where you started.”

For the day, the S.&P. was up fairly modestly, with a gain of 2.28 points, or slightly under 0.2 percent.

It was also a banner week for the Dow Jones industrial average, which rose above 13,000 on Tuesday for the first time since 2008 before falling back later in the day. The Dow closed Friday at 12,982.95, down 1.74 points.

Even with the breach through the 13,000 ceiling, analysts gave a cautious welcome. It was “certainly a statistical milestone,” Bernard Baumohl, chief global economist at the Economic Outlook Group, said this week. “But not one worthy of uncorking champagne bottles and having a celebration.”

The Nasdaq closed up 6.77 points on Friday at 2,963.75. All three indexes were up less than 1 percent for the week.

The gains so far this year have pushed the S.&P. nearly 25 percent higher than its most recent lowest point, on Oct. 3, 2011. The broader market index has more than doubled since the March 9, 2009, low of 676.53.

In those periods, the gains and losses have shifted. Between June 2008 and Friday, consumer discretionary and technology stocks have been the top two gainers, surging more than 37 percent and 22 percent, while financial stocks have shed the most, falling more than 36 percent.

Analysts noted that over the years, surges in the stock market often do not run on parallel tracks with the economy.

In the summer of 2008, the economy was already in recession, but some days the equities markets posted strong gains. In early August, for example, the Dow surged more than 200 points in one trading session even as corporate profits were falling, layoffs were rising and economists were warning that the outlook for the year looked grim. Indeed, by October 2008, the nation’s unemployment rate jumped to the highest level in 14 years.

“There is a separation between the United States economy and stock prices,” said Russell Price, a senior economist with Ameriprise Financial. He said in 2008, a lot of the market momentum came from sales growth overseas in emerging markets, and a weaker dollar that helped profits.

In 2010 and 2011, there were also gains in the early parts of those years before the markets tapered off. This was especially true last year, when the earthquake in Japan severed supply chains, and oil prices surged. Stocks sank as the second half of the year saw sharpening concerns on sovereign debt problems and the United States budget deficit.

“Domestically, this is the third time we are gaining momentum in this recovery,” Mr. Price said.

The rally so far this year has coincided with a positive, though sluggish, trend in the economic data. The government’s monthly report on the jobs market showed a gain of 243,000 jobs in January, and the lowest unemployment rate since early 2009. Corporate reports have been generally positive and valuations attractive.

Still, while stocks have essentially returned to pre-crisis levels, the ride between then and now has been liked a “roller coaster,” with a lot of the current trading amounting to momentum coming off a volatile period in the second half of 2011, said George M. Feiger, the chief executive officer of Contango Capital Advisors.

He said that much of the buoyancy was “artificial,” with companies showing better earnings because of cost-cutting, and that the banking system had been repaired through bailouts. Mr. Gault and other economists also noted that there was still a huge amount of spare capacity in the economy.

In a global sense, with sovereign debt problems and recession prospects in the euro zone and slowing growth in some emerging markets, American equities were looking better by comparison.

“We are now the least dirty shirt in the laundry,” Mr. Feiger said.

“Our best guess is that we might see a pattern like last year,” he said, referring to the beginning of 2011, when there were also market gains. “The things that brought it down in the second half, they are as bad today. I would say nothing fundamentally has changed.”