Housing, consumer confidence show new vigor

Blog, News

June 24, 2014
Paul Davidson, USA Today

A batch of economic reports Tuesday spelled good news for consumers, as the housing market continued to bounce back from a brutal winter, home price gains moderated, and consumer confidence surged to a post-recession high.

New home sales jumped 18.6% in May to a seasonally adjusted annual rate of 504,000, the Census Bureau said. That’s the sharpest increase since 1992 and the strongest pace of sales since 2008.

Economists had estimated that new homes were sold at an annual pace of 440,000.

An unusually high share of new homes sold last month were not yet under construction — 36.7% — says Richard Moody, chief economist of Regions Financial. That likely reflects a lean supply and foreshadows stronger single-family home construction in coming months, he says.

The report was the second this week to signal a rebounding housing market after cold and snowy weather significantly hampered home sales and construction earlier this year. On Monday, the National Association of Realtors said existing home sales rose 4.9% last month, the strongest monthly gain in nearly three years.

At the same time, home prices are continuing to increase but at a slower pace. The Standard & Poor’s/Case-Shiller index of home prices in 20 large cities ticked up 1.1% in April and is up 10.8% in the past 12 months. In March, however, the index posted an annual gain of 12.4%.

IHS Global Insight called the report “welcome news,” noting that while prices continue to drift higher, allowing homeowners to build equity, “we’re not looking at a bubble.” Home prices rose more than 13% last year, making it difficult for first-time buyers to enter the market.

The growing number of Americans who plan to buy a home in the next six months, along with surging stock prices and stronger job growth, helped lift consumers’ outlook to a six-year high this month.

The Conference Board’s consumer confidence index rose to 85.2 from 83.5 in May. That’s the highest since January 2008. Economists surveyed by Bloomberg expected a reading of 83.5.

The economy shrank in the first quarter for the first time in three years, but the mood of consumers is shaped more by a labor market that has shifted into a higher gear recently. Since February, monthly job gains have averaged 231,000, up from 194,000 in 2013.

The sharp jump in the index this month was largely driven by consumer’s view of current conditions. Those saying business conditions are good rose to 23% from 21.1%, and those saying conditions are bad fell to 22.8% from 24.6%.

IHS economist Chris Christopher says consumer confidence was not dented by sharply higher food prices and expectations that gasoline prices are headed up amid an escalating conflict in Iraq.

The Federal Reserve last week continued to taper bond purchases aimed at holding down long-term interest rates but gave no signal that it plans to increase short-term rates before mid-2015, despite rising inflation.

Fed officials will likely be closely watching reports this week that could provide further clues to the economy’s health. The Commerce Department is expected to revise its estimate of the economy’s first-quarter contraction from an annual rate of 1% to as much as 2%. A measure of durable goods orders could indicate whether business spending bounced back last month after slowing in April.

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