With Black Friday sales double digit increase over 2011 and Cyber Monday with record $1 Billion in sales(not to dismiss $1 Billion online sales on Black Friday), the Consumer has stroked a check of confidence.
As can be seen in Jim Belote's latest Market Trends newsletter, there is good reason for the positive retail sales:
1. Homes sales, new and resale continue to improve.
2. Improved Housing Market has positive ripple effect
(see Black Friday sales).
3. Interest rates are still low low low.
But not, the beginning of the warning of future impacts of positive trends in real estate:
1. Mortgage rates moderating
2. Housing Supply is low
3. Bargains evaporating.
Conclusion: Buyer or Seller
Act now or Regret later
Keeping you updated on the market!
For the week of November 26, 2012
MARKET RECAP
Last week, we wrote that housing would be the economic driver that lifts us from the morass that has plagued the economy for much of 2012. This week's slate of housing data buttresses our argument.
We'll start with existing-home sales. The data show sales rose 2.1%, to a 4.79-million annual rate, in October. Prices continue to trend higher, with the median price of an existing-home posting at $178,600, an 11% increase over the year-ago median price. The average price, meanwhile, was up 9.9% year over year to $226,300.
Supply was a minor irritant in the data. Existing-home sales likely would have been higher if there had been more homes to sell. Inventory dropped to a 5.4-month supply in October, the lowest level in 6-1/2 years. The number of existing homes on the market, at 2.14 million, is the lowest in 10 years.
Existing-home sales contribute to economic growth, just not as much as new-home sales. Before a new home is sold, it must be built. Construction activity has far-reaching implications. Construction requires new material, new employment, and new financing. Many more businesses are impacted by the sale of a new home than an existing home.
For these reasons, new-home activity is a key component in economic activity.
The good news is that home builders are maintaining a busy construction schedule these days. New home starts were up again in October, rising 3.6% to an annual pace of 894,000 units. The pace in starts is up to a level unseen in over four years. Given the strong, persistent trend in starts, we weren't surprised to see home-builder sentiment rise yet again. The latest survey of home builders show sentiment is approaching a seven-year high at 46 (50 is the point were optimists and pessimists are split). We expect sentiment, along with new home sales and starts, to trend higher through December and into 2013.
We remain bullish on sales because the housing recovery continues to expand to more markets. Zillow’s October Real Estate Market Reports show that 228 (62%) of the 366 markets it follows saw annual home-value appreciation in October. Among the top 30 metropolitan regions, 29 experienced monthly home-value appreciation.
Financing also continues to trend positively. The Mortgage Bankers Association reports its purchase index was up 3% for the November 6 week. Though applications are volatile week to week, they remain in an up trend dating back to April. We've mentioned many times that leveraging an appreciating asset is a smart financial move. Borrowing to pay part of the purchase price means realizing a higher return on investment, because borrowing (leverage) requires less equity commitment. Low lending rates also goose investment returns. Mortgage lending rates continue to hover near all-time lows, and we don't see that changing in the immediate future. Keep in mind, though, should housing ignite economic growth, lending rates will be hard pressed to maintain today's all-time lows.
Economic Indicator Release Date and Time Consensus Estimate Analysis
Consumer Confidence Tues., Nov. 27,10:00 am, ET 70 Index Important. Rising consumer
confidence points to rising
economic activity heading
into 2013.
Mortgage Applications Wed., Nov. 28,7:00 am, ET None Important. The positive
trend in purchase
applications is a good
indicator of rising home
sales.
New Home Sales Wed., Nov. 28,10:00 am, ET 385,000 Important. The trend in sales
(October) (Annualized) and construction are encouraging
encouraging economic indicators.
Gross Domestic Product Thurs., Nov. 29,8:30 am, ET 2.9% Growth Important. GDP growth will be
(3rd Quarter 2012) (Annualized) revised higher; unanticipated
higher growth could pressure
interest rates higher.
A Virtuous Circle
One pervasive economic misconception is that consumption drives growth. Consumption matters, to be sure, but not as much as investment. After all, to consume you must first produce something to exchange.
For this reason, we follow investment trends. We are particularly encouraged by the rising trend in residential fixed investment. After hitting a multi-year low in late 2010, residential fixed investment has trended higher. The good news is that investment has a long way to go before reaching historical norms. That means the market still holds a lot of potential.
Housing, as we mention above, has a cascading effect. Housing investment influences many other businesses. As housing activity increases, activity in other business sectors will increase as well: and voilà , more economic growth!
More economic growth, in turn, lowers risk aversion. If economic growth materializes as we expect, we should see more accommodating regulation and more accommodating lending in 2013. At least that's the way the market worked in the past.
There is one slight negative in our scenario. Stronger economic growth will also lead to rising home prices and higher lending rates. This is a point worth driving home to clients. Last year, we saw a plethora of housing bargains. This year we see bargains, just fewer of them. This time next year, we expect to see fewer bargains still.
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