Tax Credit Gives a Lift to Housing
Published: December 22, 2009
Data released on Tuesday indicated that the economic recovery, while still uneven, has carried into the end of the year, and analysts expect it to gain strength, a view seconded by investors.
The fragile housing sector showed signs of firming up, according to a report from the National Association of Realtors, with existing home sales climbing a greater-than-expected 7.4 percent in November, to a seasonally adjusted annual rate of 6.54 million, up from 6.09 million in October.
Economists cautioned that the results reflected a rush to take advantage of an $8,000 tax credit for first-time home buyers and would probably taper off in December.
"It’s good news, but we’re still in a very depressed housing market," said Guy D. Cecala, publisher of Inside Mortgage Finance, a weekly newsletter. "We need a bunch more of these increases before we can say we have a healthy or stabilized housing market."
Mortgage applications have recently declined, and economists expect home sales to remain in a deep slump next year, rising briefly in the spring but then falling again after the housing credit expires in April.
Home sales were up 44.1 percent compared with November 2008, and inventories fell to 3.52 million homes, down significantly from peaks last year. But that figure does not include the large number of homes foreclosed by banks that are not listed with realty agents.
The market for high-priced homes also remained subdued, an indication that as household incomes and credit streams dry up, consumers are turning to low and midrange options.
Home prices were essentially flat from October, with the median sales price at $172,600, but they were down 4.3 percent from a year ago.
A separate report showed that the economic recovery was weaker than expected in the third quarter, held back by slow business construction and dwindling inventories.
The Commerce Department said the economy expanded at an annual rate of 2.2 percent from July through September, down from the original forecast of 3.5 percent. The downward revision was well above average, but analysts still foresee stronger growth in the fourth quarter as exports rise and an improved jobs market encourages consumer spending.
"We did get off to a slightly slower start than we had thought," said Nigel Gault, chief United States economist for IHS Global Insight. "That would be very worrying if we didn’t have evidence that we had done well in the fourth quarter."
Stock markets showed solid gains, with the Dow Jones industrial average climbing 50.79 points, or 0.49 percent, to 10,464.93.
The Standard & Poor’s 500-stock index gained 3.97 points, or 0.36 percent, to 1,118.02, after touching an intraday high for the year.
The Nasdaq composite index rose 15.01 points, or 0.67 percent, to 2,252.67.
The benchmark 10-year Treasury bill was down 21/32, to 96 28/32. The yield was 3.75 percent, up from 3.67 percent late Monday.
As the new year approaches, investors are optimistic that the economy will build on its earlier gains rather than fall into another downturn. Retail sales were higher than expected in November, and the trade deficit unexpectedly narrowed in October. In addition, a weak dollar is making American products overseas cheaper, contributing to hope that exports will rise.
Though the third quarter was weaker than forecast, it was the first period of growth in a year, suggesting the longest contraction since World War II had ended. Government stimulus efforts, like the popular cash-for-clunkers program, helped spur spending.
Analysts were caught off guard by the size of the decline in the rate of expansion, measured in terms of gross domestic product — the total value of goods and services in the economy.
Last month, the government revised the rate to 2.8 percent in the third quarter, down from 3.5 percent in October, and economists surveyed by Bloomberg expected it to remain steady.
A revival of exports and consumer spending in the last part of 2009 is expected to bring the rate of growth to about 5 percent for the fourth quarter. The momentum will probably continue into 2010, economists say, though high levels of unemployment and a skittish business climate may curb consumer spending, hiring and production.
The Commerce Department’s revisions were based on smaller-than-expected business inventories, which fell by $139.2 billion. Spending by businesses on items like software and equipment was also weaker than expected, rising by 5 percent rather than the 8.4 percent originally predicted.
Paul Dales, chief economist for Toronto-based Capital Economics, said the drop was "nothing to worry about," but he expressed concern about the decrease in investment by businesses.
"It may suggest that a lot of the demand pent up during the recession has already been released," Mr. Dales wrote in a research note Tuesday. "High uncertainty and lots of spare capacity are limiting capital spending."
Construction of business facilities like malls and office buildings fell more than previously thought, by 18.4 percent rather than 15.1 percent. Economists attribute that drop to a frail commercial real estate market, which is confronting high vacancy rates and banks that are reluctant to finance business expansions.
Spending by state and local governments was also weaker than expected, falling 0.6 percent, compared with the 0.1 percent originally forecast.
Consumer spending was revised slightly, growing 2.8 percent in the quarter rather than 2.9 percent.
Following are the results of Tuesday’s Treasury auction of four-week bills: