The Week in Review: December 17-21

The Week in Review: December 17-21

BY: MARK LIEBERMAN, FIVE STAR INSTITUTE ECONOMIST

Economic indicators are never clear and are not isolated bits of data. The numbers released in the last week provided another example of that maxim.

On Tuesday, the National Association of Home Builders (NAHB) reported its Housing Market Index (HMI), often described as the builder confidence index, advanced for the eighth straight month, moving to 47, its highest reading since April 2006. But confidence is more than checking off a box on a survey form, as we learned the next day, when the Census Bureau HUD reported housing starts fell in November.

Some analysts chose to focus not on starts—reflecting a serious and costly commitment—but on housing permits which increased. But filing an application for a permit—much like completing a survey form—involves little heavy lifting, associated filing fees notwithstanding.

When numbers disappoint, weather often becomes a convenient target of blame, but superstorm Sandy had little impact on the disappointing starts report. Starts in the Northeast remained within the recent range: 73,000 in August, 77,000 in September and October and 73,000 in November. Starts in the West fell from an aberrational 213,000 in October to 172,000 in November, the 41,000 month-month decline in the region accounting for more than the national drop of 27,000. (Starts rose 18,000 in the South and Midwest combined.)

The index of traffic to builder showrooms—one of the components of the HMI—has increased 146 percent in the last year, dwarfing the increases of the other two index components (current sale activity and anticipated sale activity) in six months.

Thus, the confidence component is based not on hard sales data but on window shopping; no surprise that builders aren’t spending that money.

One other number that might spook builders was the increase in existing home sales, which in November topped 5 million (seasonally adjusted annual rate) for the first time since 2009. About 12 percent of the November sales were transactions involving foreclosed homes, and 10 percent were short sales. Combined, those discount categories have represented almost 30 percent of existing home sales this year, giving home buyers a less expensive alternative to new homes.

The median price of a new home in October was $237,700, 32 percent more than the median price of an existing single-family home—$180,600, and November was not an outlier—the median price of a new home has averaged $237,670 in the first 10 months of this year, 35.7 percent higher than the average median price of 175,118 for an existing home (through November).

Next week may be holiday-shortened but will include three important housing data reports along with the weekly report on initial claims for unemployment insurance. The Case-Shiller Home Price Index Wednesday (pushed back one day because of the Christmas holiday) is expected to show a 4.0 percent year-over-year improvement (on the 20-city index) for October, which would be up from the 3.0 percent gain reported for September. That would be the strongest yearly gain since June 2010, when prices were boosted by an expiring homebuyer tax credit.

The report on new home sales on Thursday is expected to show a 2.7 percent jump in sales to a seasonally adjusted annual rate of 378,000 units in November. Sales slipped slightly in October to 368,000 from 369,000 in September, the first drop since June. In the first ten months of the year sales have averaged 361,000, up from 302,000 in the same period in 2011. On Friday, the National Association of Realtors will report on its Pending Home Sales Index for November – the existing home sales counterpart to the new home sales report. The PHSI is expected to show a month-month gain of 1.0 percent, down from 5.2 percent in October but nonetheless the straight monthly increase.

Hear Mark Lieberman every Friday on P.O.T.U.S. radio, Sirius-XM 124, at 6:40 am and again at 9:40 eastern time.

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