Existing-home sales posted another record and the U.S. economy continues to show positive signs as the 3rd quarter real GDP was revised upward for the second month in a row to 4 percent.

Several variables reversed their negative trends from prior months. Consumer confidence jumped sharply after five months of declines. Lower energy prices, a rebound in the stock market and positive job growth probably contributed to this very positive turnaround. Businesses continued to add jobs in November, as payrolls are now 1.6 percent larger than one year ago. Adjustable and fixed mortgage rates remained relatively 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 3rd quarter was revised for the second month in a row to 4 percent. Employers continued to add to their payrolls this month, which boosted consumer confidence.

Some pundits continue to fret about inflation. Since the Fed monitors inflation constantly, and inflation has not exceeded 6 percent in 21 years, we are not too worried about spiraling inflation.

Leading Indicators: C

The leading indicators reversed their five-month trend and rose by 0.2 percent. This reaffirmed economists’ beliefs that prior months’ declines weren’t strong enough and didn’t last long enough to signal an end to economic growth. If current months’ increases continue, the leading indicators predict very modest (below average) economic growth in the next three to six months.

Mortgage Rates: A-

The one-year adjustable mortgage rate and fixed mortgage rates remained relatively flat at 4.18 percent and 5.75 percent, respectively. The Fed raised its short-term interest rate target for the fifth consecutive time to 2.25 percent and left the door open for more increases. Obviously, the mortgage bond market was ready for the increases.

Consumer Behavior: C+

Consumer confidence posted a rebound in November on the indication of lower energy prices, a rebound in stocks and a growing job market. Most measures remain near their long-term averages.

Existing-Home Market: A-

November sales of existing homes rose 2.7 percent from October to a record 6.94 million annual sales rate. The inventory of existing homes remained flat at 4.3 months. The lower-than-expected mortgage rates continue to drive strong home sales.

New-Home Market: B

November new-home sales drastically fell 12 percent to a 1.125 million-unit annual rate, which represents the biggest drop on a percentage basis since January 1994. We think this was a statistical aberration and will wait for future months before we conclude on any trends. New-home sales fell in the three of the four regions in the U.S.: 7 percent in the Northeast, 39 percent in the Midwest and 28 percent in the West. Sales rose 13 percent in the South.

Housing Supply: C+

Housing starts fell 13.1 percent to 1,771,000 in November from 2,039,000 in October, representing the sharpest fall since January 1994.

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.


What’s your opinion? Send your Letter to the Editor to opinion@inman.com.

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