Tags: home | builders | housing | consumers

Future Isn't as Rosy as Republicans Think or Dark as Democrats Believe

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Friday, 24 Feb 2017 11:24 PM Current | Bio | Archive

  • INDICATOR: January New Home Sales and February Consumer Confidence
  • KEY DATA: Sales: +3.7%; Over-Year: +5.5%; Prices: +7.5% / Confidence: -2.2 points
  • IN A NUTSHELL: “Consumers are confident and are buying homes, but builders are not getting their share of that demand.”


WHAT IT MEANS: The economy is solid, consumer confidence is high and growth in the United States and around the world is improving. That is a mess every new president should hope for. Today’s data only add to the belief that while conditions are not booming along, they are accelerating. New home sales rose moderately in January. Still, the level of demand remains less than most builders would like to see. Whereas existing home sales were the highest in a decade, newly built units are still selling at depressed rates. Indeed, sales need to increase between 15% and 20% for the market to be called solid. Looking across the nation, solid gains were seen in all areas except the West. As for prices, they are rose rapidly, though the gains have had their ups and downs. Inventory is also improving, though it is hardly what one would call excessive. There is not a whole lot of speculative building going on.

Consumer confidence has skyrocketed since the election so it was not a great surprise that the University of Michigan’s Consumer Sentiment index eased in February. Household views on current conditions improved but they were more cautious about the future. That also should shock no one. Not surprisingly, Republicans are borderline irrationally euphoric about the future while Democrats are borderline irrationally depressed. That makes clear how the political divide is affecting people’s views on the future economy and possibly spending patterns.

MARKETS AND FED POLICY IMPLICATIONS: The more data we get, the more it is clear that the economy is moving forward solidly. No, we are not going to get 3% growth on an extended basis soon, but we should move back to the 2.25% to 2.50% range that we had seen until the collapse of energy prices shut down the energy sector. It is interesting, though, to see the divide between the new home and existing home sectors. In both places, inventory is low and prices are rising, but the sales pace of newly constructed properties is disappointing.

Apparently, the real deals are in existing homes and people are moving in that direction. For construction to rise faster, we need demand to increase, but builders will not put the shovel into the ground unless they have a clear indication the product will move. That is not an easy cycle to break, but it will keep us from revisiting the housing bubble days. We could use a few more homes on the market to spur traffic and ultimately sales. On the consumer front, reality needs to set in.

The future is neither as rosy as Republicans think nor dark as Democrats believe. But the longer it takes for the replacement of the ACA and for tax cuts and spending increases to be passed, the more concerned households, especially Republicans, will become about the future. This shows how politics could affect economic activity in this highly divided nation. When or if the uncertainty over fiscal policy takes hold in the equity markets is a wholly different question, but for now, optimism reigns.

Joel L. Naroff is the president and founder of Naroff Economic Advisors, a strategic economic consulting firm.

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Consumers are confident and are buying homes, but builders are not getting their share of that demand.
home, builders, housing, consumers
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2017-24-24
Friday, 24 Feb 2017 11:24 PM
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