Home Sales, Leading Index Show Recovery Gains Strength

Thursday, 20 Jan 2011 03:07 PM

 

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Sales of previously owned U.S. homes and the index of leading indicators exceeded forecasts, signs the expansion is gaining momentum at the start of 2011.

Purchases of existing houses jumped 12 percent in December to a 5.28 million annual rate, the National Association of Realtors said today in Washington. The New York-based Conference Board’s gauge of the economic outlook for the next three to six months rose 1 percent. Claims for unemployment benefits fell by 37,000 last week, according to the Labor Department.

A report showing Philadelphia-area manufacturing expanded for a fourth month indicates companies such as International Business Machines Corp. are also enjoying greater demand from countries like China. At the same time, Federal Reserve officials have said growth isn’t strong enough to push unemployment down as much as they would like, making it likely they will stick to plans to pump more money into the economy.

“Manufacturing is on solid footing, the housing market is nearing a bottom and the labor market is slowly healing,” said Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania. “The economy is still heading in the right direction. It seems to be gathering some steam but we have a long ways to go.”

Stocks fell on concern China will raise interest rates to cool its economy. The Standard & Poor’s 500 Index dropped 0.5 percent to 1,276.09 at 12:09 p.m. in New York. Treasury securities fell, pushing the yield on the benchmark 10-year note up to 3.41 percent from 3.34 percent late yesterday.

As signs of stronger economic growth push up borrowing costs, homebuyers may be rushing into the market to lock in current mortgage rates before they climb further.

Mortgage Rates

The average rate on a 30-year fixed mortgage was 4.74 percent this week, according to figures from Freddie Mac. The rate reached 4.17 percent in early November, the lowest since records began in 1972.

The jump in rates “provided some urgency,” Lawrence Yun, the Realtors’ group’s chief economist, said in a press conference. An initial rise in borrowing costs “generally induces people to make the decision earlier,” he said.

Buyers, returning to the housing market after a government tax credit expired in the middle of 2010, may also be taking advantage of cheaper homes. The median existing-home sales price decreased to $168,800 from $170,500 in December 2009.

For all of last year, purchases decreased to 4.91 million, the fewest since 1997, the National Association of Realtors’ figures showed.

Range of Forecasts

Existing-home sales were forecast to rise to a 4.87 million rate in December, according to the median of 73 forecasts in a Bloomberg survey. Economists’ estimates ranged from 4.5 million to 5.07 million after November’s 4.68 million pace.

Lennar Corp., the third-largest U.S. homebuilder by revenue, is among companies bracing for a slow rebound. The Miami-based builder on Jan. 11 reported fourth-quarter profit that beat analyst estimates on cost cuts and earnings from its distressed-investing unit.

“The housing recovery will traverse a long and bumpy road,” Stuart Miller, chief executive officer, said in a conference call that day. Still, “we’ve seen some early signs of gradual stabilization in the market.”

More building permits in December were the biggest contributor to the gain in the Conference Board’s index of leading economic indicators. Building code changes took effect on Jan. 1 in California, Pennsylvania and New York, the Commerce Department said, which may have been the source of the increase.

Confidence, Hiring

Improved consumer expectations, fewer firings and higher stock prices also helped drive the leading index up in December after a 1.1 percent rise a month earlier.

“We do see a lot of momentum in the index, which is consistent with GDP growth well north of 3 percent,” said Carl Riccadonna, a senior U.S. economist at Deutsche Bank Securities Inc. in New York. “Economic momentum is being maintained and the index suggests some acceleration.”

The December reading, the sixth straight monthly increase, exceeded the median forecast for a 0.6 percent gain, based on a Bloomberg survey of 58 estimates.

The Fed Bank of Philadelphia said its general economic index slipped to 19.3 from last month’s 20.8. Readings greater than zero indicate expansion. Orders placed with area factories grew the most since September 2004, while a gauge of employment was the strongest since April 2006.

Expanding Trade

Manufacturing makes up about 11 percent of the economy and is getting a boost from expanding world trade. IBM, the world’s largest computer-services provider, said this week that fourth- quarter hardware revenue climbed 21 percent as a mainframe computer introduced in July helped boost sales in that product category by almost 70 percent.

“We see customers starting to spend more in their base business as we exit the recession,” Mark Loughridge, chief financial officer of the Armonk, New York-based company, said on a Jan. 18 conference call.

The U.S. is moving to strengthen economic ties with China as a way to boost American exports. President Barack Obama said the U.S. and China both reap “substantial benefits”” from cooperation on economic and strategic issues even as friction remains over currency, trade and human rights.

Following a meeting with business leaders from both countries yesterday, Obama said that a prosperous and growing China is an important market for U.S. goods, and the administration highlighted deals to sell Boeing Co. airplanes and General Electric Co. locomotives.

© Copyright 2014 Bloomberg News. All rights reserved.

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