NAROFF ECONOMIC ADVISORS, Inc.
Joel L. Naroff
President and Chief Economist
INDICATOR: December New Home Sales
KEY DATA: New Home Sales: down 7.3%; 2012 Sales: up 19.9%; 2012 Median Prices: up 7.2%
IN A NUTSHELL: “Despite the fallback in sales in December, the housing market recovery remains on track.”
WHAT IT MEANS: December was not a good month for builders as new home demand dropped sharply. A nearly thirty percent decline in the Northeast could be explained by the lingering effects of Sandy. However, the South and West were also off so it was not just one area being flooded out. Still, the decline must be looked at cautiously as there was a nearly six percent upward revision to the November sales pace. That could indicate an acceleration in sales over the course of the month and we just might see similar revisions in the months ahead. Also, the sales pace does jump around and it is hard to quibble with a nearly twenty percent surge in demand between 2011 and 2012. More importantly, prices continue to rise. For all of 2012, the median price was up just over seven percent but from December 20122 to December 2012 the gain was nearly nine percent. It looks like the price increases are accelerating.
MARKETS AND FED POLICY IMPLICATIONS: While it was disappointing to see a decline in new home sales in December, given the volatility of the numbers and the influence of Sandy in the Northeast, the drop is not something to worry about. Prices are rising and while more homes are coming on the market, the supply is still not great. We are likely to see those trends continue and that is good news as it means prices of both new and existing are going up which adds to equity and ultimately more housing activity. With unemployment claims at levels that point to stronger job growth and mass layoffs likely to have peaked after the fiscal cliff scare, the labor market improvement should work in concert with the rising house prices to raise consumer confidence and spending. The tax hikes already implemented and the looming spending cuts do mean that the federal government will be restraining growth this year but additional business, consumer and even state and local government spending should overcome that hurdle. I remain very optimistic about economic growth this year.
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