from Peter Radford
Yes it’s hard to focus at this time of year under the best of circumstances. This year is even worse. The background noise provided by the lack of active negotiation over the so-called fiscal cliff, and the Treasury Department’s sudden discovery that we will hit the debt ceiling at year’s end, drown out any day to day news. So in the spirit of giving here’s a look at that humdrum stuff:
We learned yesterday, from the Case-Shiller index, that home prices fell in October. Since the index is not seasonally adjusted most people seem to think that this simply reflects the early fall slow down in activity rather than the onset of a prolonged decline. The biggest declines were registered in Chicago – down 1.5% for the month and 1.3% for the last twelve months, and in Boston – down 1.4% for the month, but up 1.4% over the past year. That twelve month decline in Chicago was only one of two city declines: New York was the other where prices dropped 1.3% over the last year.
In general the numbers support the notion of a slow recovery in real estate from a very low level. I doubt prices will accelerate much in 2013, with a lot riding on how income tax rates and deductions are sorted out as part of the current sort-of negotiations in Washington.
Today’s news is not good. Consumers report that the fiscal cliff shenanigans is getting them down. The Conference Board measure of consumer confidence, as of early December, sank to 65.1 from 71.5 in early November. This is the lowest confidence has been for four months. Within the overall index there were some interesting data in the sub-indices. For instance, the index of expectations plummeted from 80.9 in NOvember to 66.5 in December. Obviously consumers are deeply affected by the nonsense in Washington. We went through an almost identical shift back during the 2011 debt limit debacle, and we should expect to follow a similar trajectory this time. This implies confidence will perk up almost the minute a deal is cut and will, most likely, return to its slow and steady improvement. Of course there are a whole string of ifs in that forecast, beginning with the existence of a deal at all.
New Home Sales
New home sales jumped up by 4.4% in November, bringing levels to 15.3% higher than a year ago. The rate of sales, 377,000 annually, is still very low compared with the fantasy levels of the bubble years, but represents a very solid recovery from the depths of a year or two ago. The strongest region was the South, where sales leapt 21.1% in the month, followed by the Northeast where sales rose 12.5%. Other regions fared less well: sales out West dropped 17.8%, and the Midwest saw a decline of 12.5%.
Persistently low mortgage rates appear to be the key factor driving sales. Any boost provided by rising incomes is very modest due to the lack of much increase in wages. The broader availability of jobs is adding some demand, although I doubt it is a key driver. Another possible source of growth in demand is simply the backlog of households who postponed buying during the early crisis years and who are now more comfortable going ahead. Once this backlog is worked off, and in the absence of better incomes growth, I expect sales to suffer a slight stagnation in 2013 – not necessarily an outright decline, but a period of less dynamic growth.
Meanwhile the median price of a new home rose to $246,200 in November, up 3.7% from October, and about 15% higher than a year ago.
New claims for unemployment assistance dropped 12,000 to 350,000 last week. This number may be skewed by the closure this week of key data gathering offices around the country and so is potentially unreliable. The key information in that data is that claims appear to have fallen back below their pre-hurricane Sandy levels. Also, the four week moving average of claims dropped by 11,250 to 356,750, its lowest level in four years. Setting aside the caveats due to the odd seasonality of the numbers, I think we can draw a general conclusion that the jobs market is lumbering along slowly at a pace that is neither good nor bad.
So what does this slew of data mean?
Not a heck of a lot. The economy is almost exactly where we left it before the holidays. Growth is clearly slower than it was in the summer, but is hasn’t stalled.
And, unfortunately, the outcome of the fiscal cliff discussions will have more bearing on 2013 than anything else.
Given both the content of the negotiations and the players involved that is not a happy thought.