Continued weakness in the housing market and financials are spilling over into the economy as evidenced by the dismal December employment figures. The unemployment rate in December jumped to its highest levels since November 2005 while 49,000 construction jobs were cut last month. Annualized sales of new homes also fell to their lowest levels in over 12 years in November. Increased concern of an economic recession has sent the market reeling in the first week of the new year. The Nasdaq has declined for seven straight trading sessions while the DJIA has lost over 430 points since the end of last year. With high energy prices, possibility of a recession, and continued weakness in housing, 2008 should be a wild ride.
Higher energy costs may also limit the Fed's flexibility to spur the economy going forward. Crude prices traded above the $100/barrel market for the first time last week before settling in to closing trading on Monday at roughly $95/barrel. The U.S. economy ended the third quarter on a solid note, posting its strongest growth in four years, but that may have very well been the quiet before the storm. Economic growth is widely expected to slow to a halt in coming quarters while weakness caused by the housing market and financial sector continue to weigh on the employment picture.
The economy added just 18,000 non-farm payrolls in December which is the weakest monthly increase in over four years while the unemployment rate jumped to its highest levels since November 2005. Currently, non-seasonally adjusted total non-farm employment shows a figure of 139,229,000, a weak 0.92% increase over December 2006. The unemployment rate increased to 5.0% from 4.7% in the previous month.
Consumer confidence stabilized in December after posting declines in each of the past four months. The consumer confidence index increased to 88.6 in December compared to an upwardly revised 87.8 in November which represents a 0.8 point increase from the previous month. The index was at its lowest levels in November since October 2005.
Final estimates for third quarter gross domestic product remained unchanged from preliminary estimates at 4.9%. This is the strongest growth the economy has experienced since the third quarter of 2003. Economic growth, however, is expected to weaken significantly in the fourth quarter in the wake of the sub-prime market blow-up and credit crunch. Weak residential performance continued to drag on growth. Consumer spending, business investments, and government spending all contributed to growth in the quarter.
The existing homes market showed signs of stabilizing in November while the new homes market continued to struggle. New home sales plunged 9.0% in November to a seasonally-adjusted 647,000 homes, down from a downwardly revised October figure of 711,000. New home sales are now at their slowest annual pace since April 1995. At the current sales pace, there are 9.3 months of new homes supply on the market. Inventory levels continued to decline as builders have been scaling back production until the market stabilizes. The number of new homes for sale declined to 509,000 which are the lowest it's been since November 2005. The median price for a new home rebounded 4.2% from October levels to $239,100. Median new home prices are back to their highest levels since July.
Existing home sales posted gains for the first time since February as seasonally-adjusted sales of existing homes increased 0.4% in November to 5.0 million units. Existing home sales have recorded a year-over-year decline in every month since February 2006. Sales of existing homes are down 20.0 % from the 6.25 million units in November 2006. Median existing home prices in November increased for the first time in five months to $210,200. Inventory of existing homes fell to 10.3 months supply at the current sales pace, while the number of existing homes for sale declined 3.6% to 4.273 million units. This is the first time since December 2006 in which both existing home prices and sales both increased while inventories declined.
National average mortgage rates declined to its lowest levels in a month to 6.07% in the latest Primary Mortgage Market Survey released weekly by Freddie Mac on January 3rd. In the week ending December 28th, the MBA's seasonally-adjusted Purchase Index dropped to 360.8 from 394.5 in the previous week. The purchase index is at its lowest levels since October 2003. The latest figure reflects a 8.54 percent decline from last week and a 11.33 percent drop from the same period last year.
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Employment Growth -- 1,270,000 -- D+
Unemployment Rate -- 5.0% -- A-
Real GDP Growth -- 4.9% -- A-
Consumer Confidence -- 88.6 -- D+
Purchase Mortgage Applications -- 360.8 -- D+
Mortgage Rates -- 6.07% -- A+
Median Price Existing Homes -- $210,200 -- F
Existing Home Sales -- 5,000,000 -- D+
Existing Home Inventory -- 4,273,000 -- F
Existing Home Affordability -- 51.1% -- C
Median Price New Home -- $239,100 -- F
New Home Sales -- 647,000 -- D-
New Home Inventory -- 509,000 -- F
New Home Affordability Ratio -- 45.4% -- B-
The latest Regional News from Hanley Wood Market Intelligence:
With the downtown condominium market not showing signs of a near term recovery, many investors and developers have turn their attention to the hot hotel market. The hotel market is reaching levels not experienced in Chicago since pre-September 11, 2001. Developers are building or planning more than 8,300 rooms over the next five years. Currently, downtown is host to twelve hotels under construction and another 21 in the planning phases.
The metro area continues to forge ahead with its plan to create a pedestrian friendly urban core. The effects of this initiative are already begging to be felt. Currently, the city's southeast submarket is one of the communities to benefit from the newly opened T-Rex light rail. As a result the local vicinity is experiencing a strong demand for retail and office space. There are over 1 million square feet of retail and office space in development or planning stages in anticipation of the benefits afforded from the newly adopted pedestrian friendly environment.
Las Vegas, NV
According to a recent RealtyTrac report, through the first half of 2007 foreclosures in Las Vegas were 142% higher than a year ago at 22,928 foreclosure fillings. While there are issues concerning how foreclosures are calculated among various data companies, what remains constant is the presence of Las Vegas at the top of the foreclosure list. The large bulk of these foreclosures are homes owned by investors who do not live in those homes.
Science, Technology Establishing Presence
As the traditional technology industry in Atlanta is finding its footing, biotech is taking off. Six metro area universities are helping to create new businesses, provide research support, and educate much needed talent. The opening of the Technology Enterprise Park in Midtown is major step in helping new companies move out of the smaller university setting and grow, adding to the long term potential of this industry in the area. In the near term, the biotech industry will get a boost from Quintiles Transnational Corp. and UCB Inc. announcing expansions in Cobb County. As biotech grows in Atlanta, more and more skilled workers will be attracted to the metro to fill these high-wage jobs.
Tourism Strong, Expenditures Even Better
The brightest spot in the Naples economy this year is that visitors have been coming to Naples in numbers roughly equivalent to last year and have been spending significantly more. The Naples, Marco Island and Everglades Convention and Visitors Bureau reports that 1.1 million people visited the area from January through September 2007, down less than 1% from the same period in 2006. Their direct expenditures, however, increased more than 6%, to $625 million. With the dollar's current weakness driving international visitors, we expect tourism to Southwest Florida to be strong this year.
Learn more about markets featured in this article: Atlanta, GA.