As more hard evidence emerges that the housing market is indeed experiencing a significant country-wide recovery, new data shows how impacting this is on the overall economy, fueling confidence and spending and off-setting other less-than-great economic news. In a consumer-driven economy, a confident consumer (with improved net worth because of increasing equity in their homes) is good for the economy at large.
Home prices accelerated by the most in nearly seven years in March as the spring buying season gave the sector traction, while surging consumer confidence pointed to some resilience for the economic recovery: the two segments could act as buffers as the broader economy faces the pinch of belt-tightening in Washington. As home pricing escalates so too does consumption of appliances, furniture, decorative elements, pool building, and other goods. In an economy that is craving demand more than anything to fuel growth, this could signal the unleashing of the US CONSUMER BEAST……
20 metropolitan areas climbed 10.9 percent year over year, beating expectations for 10.2 percent, the biggest increase since April 2006, just before prices peaked in the summer of that year. Prices in the 20 cities gained 1.1 percent in March compared to the month before on a seasonally adjusted basis, topping economists’ forecasts for a 1 percent rise. In New York the “Spring a-quakening” has delivered areas of price escalation over 20% from a year ago.
The U.S. housing market turned a corner in 2012, several years after its far-reaching collapse. The recovery has picked up since as inventory has tightened, foreclosures eased and historically low mortgage rates have attracted buyers. This recovery in the housing market likely has momentum through the rest of 2013, with economists raising their forecasts for price gains in 2013. With consumer spending up, one should expect lower unemployment, growing tax revenues, and a lesser demand on government entitlements.
More importantly, the trickle down effect of improving housing valuations: data showed consumer confidence picked up in May to its highest in more than 5 years in the midst of a stock market rally and lower gas prices (an Opec-led tax on the consumer). Housing and the consumer have shown strength even as there have been hints that tighter fiscal policy is starting to bite in the broader economy: yesterday I heard chatter complaining about higher interest rates, even though they are at historical lows, but rising. Across-the-board U.S. government spending cuts of $85 billion went into effect in March, while the payroll tax holiday expired at the beginning of the year, raising taxes for many Americans. Housing is performing better than the overall economy.
Economists expect the pace of growth likely cooled in the second quarter, partly due to tighter fiscal policy, but the second half of the year is seen regaining traction. Attention is now focused to when the Federal Reserve might start to slow its economic stimulus efforts. Wall Street rose after comments from central banks around the world reassured investors supportive monetary policies would remain in place. U.S. Treasuries yields rose to their highest levels in over a year.
Housing-related shares rose following the Case-Shiller report before giving up some gains in the afternoon, with the S&P homebuilders ETF up 0.4 percent. The ETF is up nearly 20 percent for the year, outpacing the more than 16 percent surge seen in the benchmark S&P 500 index.
Home prices in Phoenix rose 22.5 percent from a year earlier. Other standouts included San Francisco, up 22.2 percent, and hard-hit Las Vegas, up 20.6 percent. The recent home price gains seen in several markets are outpacing improvements in the underlying fundamentals and could stall or even reverse. Many of these areas are in California. Los Angeles prices rose 16.6 percent from a year ago.
For the first quarter of this year, the seasonally adjusted national index rose 3.9 percent, stronger than the 2.4 percent gain seen in the final quarter of last year. Residential investment should add to GDP growth in the coming quarters. Rising real estate wealth should also support household balance sheets and underpin consumption, helping the broader economy to offset a substantial fiscal drag in 2013.
Consumer attitudes jumped to 76.2 from an upwardly revised 69 in April, topping economists’ expectations for 71. It was the best level since February 2008. High-end consumers indicator, jeweler Tiffany & Co reported better-than-expected sales for the first quarter. Consumer activity accounts for about two-thirds of the economy and while improved sentiment does not necessarily translate into more spending, the improvement was encouraging.
Second-quarter consumption growth is likely to have slowed to a 2.5 percent annualized pace from 3.2 percent in the first quarter, according to Capital Economics.
Consumers’ assessment of the labor market improved: The “jobs hard to get” index slipped to 36.1 percent from 36.9 percent the month before, while the “jobs plentiful” index gained to 10.8 percent from 9.7 percent.