Home sales are strong and the U.S. economy continues to expand as the third-quarter real GDP was revised upward to 3.9 percent. However, several variables pointed to mixed feelings going forward. Consumer confidence declined for the fifth consecutive month. Leading economic indicators also declined for the fifth month in a row. According to a recent Wall Street Journal article, economists have been hesitant to put too much emphasis on these declines because other economic factors have been positive.
Home sales are strong and the U.S. economy continues to expand as the third-quarter real GDP was revised upward to 3.9 percent. However, several variables pointed to mixed feelings going forward. Consumer confidence declined for the fifth consecutive month. Leading economic indicators also declined for the fifth month in a row. According to a recent Wall Street Journal article, economists have been hesitant to put too much emphasis on these declines because other economic factors have been positive. One of these positive factors in October was employment, as businesses added more than 300,000 new jobs during the month, for a total of 2.1 million (1.6 percent) jobs added over the last year. Adjustable mortgage rates rose 31 basis points, while fixed mortgage rates moderated and remained flat from the previous month.
Our grading system of the economy and the housing market is a “bell curve” model, with statistics at an all-time high receiving an “A,” statistics near the long-term average receiving a “C,” and the worst times ever receiving an “F.” In this grading system, it is OK to be a “C” student. Here is our current report card:
Economic Growth: C
Economic growth in the third quarter was revised to 3.9 percent, stronger than initially reported. A significant impetus behind this growth was consumer spending, which grew 4.6 percent in the third quarter. Job gains have averaged approximately 190,000 jobs per month this year.
Leading Indicators: C
The leading indicators declined for the fifth consecutive month; however, economists have pointed out the decline hasn’t been strong enough or long enough to signal an end to economic growth. The leading indicators predict very modest (below average) economic growth.
Mortgage Rates: A-
The one-year adjustable mortgage rate increased 31 basis points to 4.27 percent, while fixed mortgage rates remained flat at 5.72 percent. The Fed raised its short-term interest rate target for the fourth consecutive time to 2 percent and left the door open for more increases.
Consumer Behavior: C+
Consumer confidence fell again in October over worries about high gas prices and the uneasiness over the situation in Iraq. Most measures remain near their long-term averages.
Existing-Home Market: B+
October sales of existing homes fell 0.1 percent from September to a 6.75 million annual sales rate. The inventory of existing homes rose to 4.3 months from September’s revised 4.2 months. The lower than expected mortgage rates continue to drive strong home sales.
For many U.S. immigrants, homes are cheaper today than they would have been in 2001. The significant depreciation in the dollar has made homes cheaper for those from Canada, Asia and Europe. The opposite has been true for those from Brazil and Mexico. U.S. home appreciation is shown in dollars in blue below, as well as in other currencies.
New-Home Market: A-
October new-home sales rose 0.2 percent to a 1.2-million-unit annual rate, the third best in history. New-home sales were mixed across the U.S. regions, rising in the West and Northeast, 12.7 percent and 19.7 percent respectively. Sales fell 3.6 percent in the Midwest and also declined in the South by 9.1 percent.
Housing Supply: C+
Housing starts increased to 2,027,000 in October from 2,020,000 in September, the highest level since December 2003. Housing starts increased across all U.S. regions, the biggest (20 percent) being in the Northeast.
John Burns is the founder of Real Estate Consulting in Irvine, Calif., which monitors changes in real estate market conditions and provides consulting services, including strategic planning, market research and financial analysis.
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