Increasing home sales is without a doubt a positive for the economy.
Sales of existing homes, which account for over 90 percent of the market, rose for the third month running in December 2011 (+5 percent) at a seasonally adjusted annual rate. Homes available for sale dropped to its lowest reading since 2006, and prices rose for the first time in 7 months.
This is all good news, but you are probably asking yourselves the following questions: Can we expect this upward trend to continue in 2012? Did home prices finally bottom? What are the implications to the shipping industry?
First, the pace of sales is far below what we experienced in 2005. And it is very unlikely that we’ll see that level of sales again anytime soon as the element of “easy credit” doesn’t exist anymore.
This is reflected by the high cancellation numbers seen month after month. We all want a much faster recovery in housing, but the truth is that a 5 percent annual rate shouldn’t be undermined but welcome.
Faster job creation is also needed to support a recovery in housing as it is evident that cheap prices and ultra-low mortgage rates cannot do the trick alone. The upward trend in home sales will continue as long as job gains keep mounting.
Second, it is still uncertain whether home prices bottomed in 2011. According to RealtyTrac, banks may seize over a million homes in 2012 (mostly pending foreclosures), meaning prices could fall further.
Lastly, the sale of a home produces consumption opportunities that reach as far as the shipping industry. Retail sales of furnishings and other home items in the near-term should improve, and the recovery in home goods imports that we saw in November may stretch a bit more.
How can we be more certain that recent gains seen in home sales are not simply noisiness in the data but the beginning of a steady, self-sustained recovery? My answer is: when we start seeing average monthly payroll gains of 150,000 or more. This is based on the assumption that all other things, including affordable prices and low mortgage rates, are constant.
I am looking forward to see January’s and February’s unemployment reports, and so should you.