WASHINGTON (1/28/14)--A strong year for the housing market ended with a whimper last month.
New home sales dropped in December by a seasonally adjusted annualized rate of 7% despite climbing by 4.5% on a year-over-year basis, according to Commerce Department data released Monday.
The absolute number of sales, on a seasonally adjusted annualized basis, was 414,000, a drop from a downwardly revised November total of 445,000.
The supply of new single-family homes on the market, meanwhile, was down 2.8% to 171,000 on a seasonally adjusted annualized basis.
The seasonally adjusted median new home price subsequently dropped last month by 3.3% to $267,300, while the months' supply of homes for sale increased to 5, up from 4.7 in November (Economy.com Jan. 27).
Sales declined in all but one of the census regions, with purchases dropping by 36.4% in the Northeast, 8.8% in the West and 7.3% in the South. Sales were up by 17.6% in the Midwest.
Throughout 2013, however, 428,000 new homes were sold--an annual increase of 16.4% and a five-year high. After the housing bubble burst in 2008, sales hit a record-low of 306,000 in 2011. During the boom years, the number peaked at 1.28 million in 2005 (Bloomberg.com Jan. 27)
Moody's said that the drop-off appears to mirror meager payroll gains in December. The ratings and research firm's analysts attributed the dip to temporary uncertainty over interest rates driven by the Federal Reserve's quantitative easing tapering, which was announced in the middle of the month.
They intoned that a "surge in November housing starts" should entice buyers throughout the next few months and that developers aren't anticipating the weak demand to be lasting. But they also warned that if the economy doesn't add roughly 200,000 jobs per month this year, new-home purchase statistics will continue to be unimpressive.
The analysts did, however, say that 2014 will probably see improved economic growth, with uncertainty over the federal budget likely to be minimal for the next two years.
Bloomberg analysts, meanwhile, said that the weather could have contributed to the tepid demand. Snowfall was 21% above normal, and last month was the coldest December since 2009, the newswire said, citing a report from weather-data provider Planalytics.
A median forecast of 75 economists polled by Bloomberg has predicted December sales to be at 455,000. The lowest prediction in the survey, at 420,000, was higher than the number reported by the Commerce Department.
WASHINGTON (1/28/14)--Today marks the last Federal Open Market Committee meeting that Chairman Ben Bernanke will reside over, and it is expected that the policymaking body will continue to slow its monthly asset-bond purchases.
At its December meeting, the Federal Reserve officials began to wind down the quantitative easing program--reducing its monthly purchases of mortgage-backed securities to $35 billion and long-term Treasuries to $40 billion.
The FOMC begins its two-day meeting today in Washington.
Analysts said that they believe the Fed wants to get out of the program, but the timeline varies. Bernard Baumohi, chief economist of Economic Outlook Group, told MarketWatch that the Fed "will continue to scale back the program and end it this year."
However, Jennifer Vail, head of fixed income research at U.S. Bank Wealth Management, thinks the Fed will accelerate the pace beyond a $10 billion-per-month drawdown. "We expect the Fed to be done with bond purchases by September," Vail also told MarketWatch (Jan. 27). "They want to get out of this business."
This is the final meeting for Bernanke before Janet Yellen takes over as chair Feb. 1. Her immediate challenge is seen in an inflation rate that continues to hover below the Fed target of 2%. The 0.9% inflation rate is gaining over the unemployment rate as the barometer for Fed action (FOXBusiness Jan. 17).
Too-low inflation increases the possibility that a "negative shock" could lead to deflation, said Eric Rosengren, president, Federal Reserve Bank of Boston. "Furthermore, persistently low inflation can theoretically undermine the credibility of the central bank," Rosengren said in a Jan. 7 speech (Bloomberg.com Jan. 26).
Rosengren was the only dissenting member of the Fed policymaking body to the decision to cut the asset-bond purchases by $10 billion per month.
WASHINGTON (1/27/14)--The latest Labor Department report on jobless claims indicates that the economy is in marginally better shape after the holiday season.
Jobless claims rose for the first time in three weeks by 1,000 to 326,000 for the week ending Jan. 18, according to data published Friday. The claim washed out a downward revision of the previous week's figure, which was also initially reported as 326,000.
But between December and January reference periods--defined by the Bureau of Labor Statistics as the week with the 12th day of the month--initial claims fell by 54,000 and the four-week moving average of the statistic was down 12,250 (Economy.com Jan. 24). Weekly data during the holiday period is notoriously unreliable.
Moody's expected the number of initial claims reported, while the median prediction in a survey of 50 economists conducted by Bloomberg forecast that claims would rise to 330,000 (Bloomberg.com Jan. 24).
The four-week moving average of initial claims fell 3,750 to 331,500, and continuing claims for the week ending Jan. 11 were up 34,000 to 3.1 million. A four-week moving average of continuing claims rose 31,000 to 2.9 million.
Bloomberg reported that the numbers for only one state and the District of Columbia were estimated. States with the largest increases in initial claims for the week ending Jan. 11 were Texas, California, Pennsylvania, Indiana and Florida. States with the largest decreases that week were New York, Georgia, Wisconsin, Alabama and South Carolina.
Friday's report was the first that accounts for the 1.35 million people who lost emergency unemployment benefits Dec. 28. Earlier this month, Republicans declined to approve a plan that would have extended the program, which, at the end of 2013 provided a maximum of 73 weeks of benefits.
Moody's said that January's report on payroll gains should be much better than December's, which initially reported a gain of 74,000--a net loss of 60,000 jobs last month can be explained by cold weather, the ratings and research firm said. It still expects hires to increase by 200,000 per month in 2014. Bloomberg also expects monthly payroll gains to increase by 200,000 this year.
Expectations for increased hiring in 2014 have informed the Federal Reserve's decision to rein in its quantitative easing program. Earlier this month, it started buying $75 billion worth of bonds every month, down from $85 billion.
Fed policy makers are set to meet this week in Washington.