Santa didn’t leave a shiny new housing market by the fireplace for builders this December, but he didn’t stuff a lump of coal in their stockings either, according to economic indicators released in the last week of 2012.
New Home Sales: Better, But Still Weak
First, the good news: New-home sales increased 4.4% in November, compared to the previous month, to a seasonally adjusted rate of 377,000. Year-over-year, that translates into a 15.3% improvement. “New-home sales are gradually picking up momentum as the economy improves,” said Barry Rutenberg, who is a builder in Gainesville, Fla., and chairman of the NAHB. “Prospective home buyers who have been sitting on the fence for years are moving back into the market due to continuing low mortgage interest rates, attractive pricing, and the improving economy.”
The median sales price for new homes inched upward in November, compared to the previous month, to $246,200. In terms of supply, new-home inventories are low, with just 149,000 homes or 4.7 months' worth at the current sales pace.
But new-home sales remain low. “Although new-home sales [in November] rose to their highest level since April 2010, this was not a promising update,” said Patrick Newport, U.S. economist for IHS Global Insight, which is projecting 365,000 new-home sales in 2012. That’s far below the annualized sales pace of 800,000-plus units that Newport would consider “normal.”
Pending Home Sales: Moving Upwards
Americans signed more contracts to purchase homes in November, according to the National Association of Realtors’ pending home sales index. That indicator improved 1.7% compared to the previous month and 9.8% compared to the same month one year ago.
Overall, November’s figure of 106.4 is the highest reading in two-and-a-half years. "Even with market frictions related to the mortgage process, home contract activity continues to improve,” said Lawrence Yun, NAR’s chief economist. “Home sales are recovering now based solely on fundamental demand and favorable affordability conditions."
Michael Rehaut, a J.P. Morgan analyst who covers public home builders, also saw the pending-home sales figure as a piece of a brightening outlook for the housing market. “Overall, we believe November’s result points to housing demand continuing to improve at a fairly consistent pace,” he wrote in a research note, pointing to upgrades in November’s new-home and existing-homes sales as well as greater builder confidence, as measured by December’s NAHB Housing Market Index. “We believe this improvement should extend solidly into 2013.”
Home Prices: Solid Annual Gains
Expected seasonal softness pushed down the S&P/Case-Shiller home price indices in October, according to data released Dec. 26, but the year-over-year comparisons showed solid gains. The 10-city composite rose 3.4% in October on an annual basis and the 20-city composite improved 4.3%.
In terms of housing markets, the 10-city composite index includes Boston, Chicago, Denver, Las Vegas, Los Angeles, Miami, New York, San Diego, San Francisco, and Washington. The 20-city composite covers those same 10 cities plus Atlanta, Charlotte, Cleveland, Dallas, Detroit, Minneapolis, Phoenix; Portland, Ore.; Seattle, and Tampa.
“Annual rates of change in home prices are a better indicator of the performance of the housing market than the month-over-month changes because home prices tend to be lower in fall and winter than in spring and summer,” said David Blitzer, chairman of the index committee at Standard and Poor’s. He added: “Looking over this report, and considering other data on housing starts and sales, it is clear that the housing recovery is gathering strength. Higher year-over-year price gains plus strong performances in the Southwest and California, regions that suffered during the housing bust, confirm that housing is now contributing to the economy.”
That represents welcome news for just about everyone. “In small and different ways, higher home prices are making a difference,” said Newport, the IHS Global Insight economist, who sees benefits for builders and homeowners as well as employers and workers. “Higher home prices lifted over 1 million homeowners above the water line during the first half of this year, according to CoreLogic. According to the Federal Reserve (Flow of Funds), the pickup in home prices in the third quarter helped increase household real estate assets by $355 billion. Higher prices also are giving home builders more leeway in raising prices, incentivizing them to ramp up on housing starts. They are also boosting home sales by nudging fence-sitters, who up to now have been waiting for home prices to bottom out before jumping into the market. Finally, higher home prices are lubricating the labor market by making it less painful for some underwater homeowners to take better-paying jobs."