The Economy: A Sour Holiday for Housing

Sharp declines in new and existing home sales in November highlight a round of economic reports released Dec. 23

By BusinessWeek, Standard & Poor's, and Action Economics staff

U.S. economic reports released Dec. 23 were a mix of the unsurprising and dispiriting. While a revised report on third-quarter U.S. gross domestic product came in about as expected, and the University of Michigan's consumer sentiment index for December was revised upward slightly, weak home sales reports for November illustrated the intractable weakness in the housing sector.

"Overall, the mix of data provided a slight downspin to the economic outlook as we approach the Christmas holiday," says Action Economics.

Here is a survey of the Dec. 23 reports:

Gross Domestic Product

The Bureau of Economic Analysis reported that real GDP fell 0.5% in the third quarter, unchanged from last month's preliminary estimate. The data were in line with the market consensus. Revisions to the components were slight. Both exports and imports were revised slightly upward, leaving little net impact. Nonresidential investment was revised upward, offset by downward revisions to residential construction and inventories.

"Overall, the changes have little impact on our fourth-quarter forecast of a decline near 6%," said S&P senior economist Beth Ann Bovino.

For the fourth quarter, Action Economics projects "a hefty 6.5% rate of decline that would sharply exceed the last big drop of 3.0% in the fourth quarter of 1990."

Existing Home Sales

Sales of existing homes fell 8.6%, to an annual rate of 4.49 million in November, below the market consensus of 4.92 million. Sales are down 10.6% from a year ago. The median home price fell to $181,300, down a record 13.2% from last November. Single-family home sales fell 8.0%, to 4.02 million, while multifamily sales dropped 13.0%, to 470,000.

"The data are weaker than expected, showing no turnaround yet for the housing market. Housing data are always volatile during the winter months, however," Bovino says.

New Home Sales

Sales of new single-family homes dropped a further 2.9% in November, to an annual rate of 407,000. The level was slightly below the market consensus of 415,000. October sales were revised down to 419,000 from the 433,000 reported a month ago. Sales are down 35.3% from a year earlier. The median sales price rose to $220,400 from $214,600 in October, but is still well below the $249,100 last November.

The sales declines for both existing and new homes chased the precipitous 18.9% November drop in housing starts and the 15.6% fall in permits. The NAHB index fell to its all-time low of 8 in November, where it remained in December, while the MBA purchase index fell by 0.9% in November, before initiating a similar-size bounce in December, notes Action Economics.

Consumer Sentiment

The University of Michigan's U.S. consumer sentiment improved to 60.1 in the final December reading, up from 59.1 in the preliminary and 55.3 in November. Expectations rose to 54.0 compared with the preliminary 52.4 reading and 53.9 in November. The current conditions index edged up to 69.5 from 69.4 in the preliminary reading and 57.5 in November.

"Overall, current sentiment readings continue to reside in deep recessionary territory, although today's data bring hope that the worst of the news is behind us," says Action Economics.

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