| Key Indicator Summary - Double Dip For Housing? |
| Written by Jonathan Dienhart | |
| 03.25.2010 | |
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There was once a time that the financial markets frantically reacted to any news that came out of the housing market. Recently, there hasn’t been nearly the reaction in equity markets one might expect from the record low new home sales in February, lackluster resale data, an increase in mortgage delinquencies, and the continued slowdown in building activity. The National Association of Realtors reported that existing home sales fell for the third consecutive month in February while Census Bureau data showed that new home sales fell for four straight months to a new record low. On Thursday, the Office of the Comptroller (OCC) and the Office of Thrift Supervision (OTS) released a report that showed the percentage of mortgages that remain current fell for the seventh consecutive quarter at the end of 2009 caused by a 21.1% jump in mortgages that were 90 days or more past due. To combat the rise in defaults, the government introduced a $14 billion plan on Friday to help homeowners who are currently “underwater” with a new FHA refinancing program.. Those predicting a “W” shaped recovery in housing seem to be having their forecast play out, with several months of deterioration of a housing market that looked like it was on the road to stabilization last year. While the extended federal tax credit for home purchases may drive some additional sales activity in March and April before it expires, so far anecdotal evidence from home builders on March home sales has not been particularly good. The state of California also has rolled out a new tax credit program for the year, but if these incentive programs fail to generate an increase in purchase activity, the housing market may be in for yet another rough year. Resale volume is being driven in no small part by foreclosure and REO sales activity, leaving new home builders left to compete in a brutally competitive pricing environment. With most economists expecting mortgage rates to begin an inevitable slow rise this year, and unemployment rates across the country remaining stubbornly high, it’s hard to make the case that anything resembling a substantial housing recovery is in the cards for 2010. Although stocks pulled back in afternoon trading on Thursday to close roughly flat, they opened trading on Friday broadly higher driven by economic reports that showed economic growth in the 4th quarter of 2009 being revised slightly lower and consumer sentiment roughly unchanged from the previous month. All three major indexes have now pared gains and trade roughly flat in early afternoon trading on Friday with the broader S&P 500 index down 0.1% to 1,164. The blue-chip Dow Jones Industrial Index flirted with 11,000 before pulling back in the past few sessions which might suggest some cautiousness in the market following a bullish seven-week run. Driving market enthusiasm this week was news that the European Union has shown more commitment to support Greece in its financial woes which alleviated some fears that may have sparked another global financial meltdown. Fed Chairman Ben Bernanke also stated that economic conditions were improving while reiterating the Fed’s stance on keeping economic stimulus efforts in place as needed. A drop in initial unemployment claims this past week ignited further enthusiasm that labor market conditions are steadily improving. While recent market focus has shifted towards a resurgence in the economy and employment data, the government took a big step on Friday to address the housing market which has taken a backseat in the headlines. The condition of the U.S. housing market remains a huge factor in an economic recovery and until foreclosures subside and home prices stabilize, the state of the U.S. economy will remain uncertain. Inclement weather may have negatively impacted home sales in the first two months of the year but expect activity to pick up in March and April before the expiration of the homebuyer tax credit. After all the government intervention to keep housing afloat, it will be very important to see if the housing market can stand on its own two feet when the tax credit expires and interest rates start to steadily move higher as the year goes on. The Economy Economic growth was revised slightly lower in the final fourth quarter GDP report. Final estimates showed that gross domestic product increased 5.6% which is slightly lower than the previous estimate of 5.9% growth. Growth remained much faster than the 2.2% pace recorded in the third quarter and marked the second straight quarter in which the economy expanded. Consumer, business, and government spending were all revised slightly weaker in the final report. Consumer sentiment remained unchanged from the previous month. Consumers remain wary of an economic recovery as nearly 1 out of every 10 Americans is still unemployed. The University of Michigan/Reuters consumer sentiment survey recorded a reading of 73.6 in March which was unchanged from the previous month but up 28% from the same year-ago period. Improving sentiment amongst consumers will be instrumental in an economic recovery since consumer spending now accounts for over two-thirds of the economy. However, high levels of unemployment and the lack of jobs currently available will likely keep most consumers hesitant.
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