Home Sales

http://www.nytimes.com/2010/12/23/business/economy/23econ.html?emc=eta1

***************

"It's not enough to be busy. The question is, 'What are we busy about?'" (Henry David Thoreau)

***************

In our 12/15 "Positive" post, we pointed out that there was some good news about the economy: the current Business Roundtable CEO survey reported 45% of those CEOs plan to hire over the next 6 months (the highest percentage from that group in 8 years). And, 60% of those CEOs plan to boost capital spending which is critical to job growth. As we pointed out on 12/15, this is the same group that told Fareed Zakaria earlier this year that they were holding back on capital spending because they were unsure of the regulatory and tax environment.

Since 12/15, Mark Zandi (someone we watch and Congress listens to) has weighed in with his revised forecast on GDP growth in 2011: 3.9% (up from his original 2.8%). The Conference Board's "index of leading indicators" showed movement upward in 9 of its 10 categories for November. Only sluggish building permits pulled down the measure.

So, the "canary in the coal mine" is home sales. Today's report that sales of existing homes climbed in November but missed forecasts is mixed news. The National Association of Realtors (NAR) reports that sales of homes rose 5.6% to a seasonally adjusted annual rate of 4.68 million in November (from about 4.43 million in October). An NAR spokesman concluded that this sector of the economy is "... underperforming, given the size of the population." The NAR position is that home sales should be over 5 million now. Their prediction is that home sales will be at 5.12 million for 2011.

This gets back to "employment." The Roundtable report on CEOs unlocking capital spending will be a boost to employment (up until now, the only capital being spent was sent to Larry Ellison so Oracle could sell productivity improvement software that slowed the need for more hiring).

The NAR's "housing affordability index" shows home prices are where they need to be: families earning a median income of $62,141 needed only to devote (in October) 13.6% of gross income (the lowest amount since calculations were started in 1970) to principal and interest on a median priced single family home.

So, home prices are low relative to incomes. We'll see what happens next.