Experts on Bernanke Speech, Home Sales
Market pros offer their take on the Fed chairman’s Jackson Hole remarks, July’s better-than-expected jump in existing-home sales, the dollar, and jobless claims
By BusinessWeek staff
Once a year, central bankers head west for their annual August jamboree, a symposium at Jackson Hole, Wyo., sponsored by the Kansas City Fed. It would be an understatement to say that much has changed on the global financial scene since last year’s gathering, and indeed, the theme of Federal Reserve Chairman Ben Bernanke’s speech delivered Aug. 21 was “Reflections on a Year of Crisis.”
What did market experts have to say about Bernanke’s speech and other key topics, including a much better than expected report on U.S. existing-home sales released Aug. 21? BusinessWeek rounded up comments from Wall Street economists and strategists on Aug. 21.
Action Economics
Fed Chairman Bernanke remained focused on the past, for the most part, in his speech on “Reflections on a Year of Crisis.” He indicated that the global economy is starting to emerge from the recession, and that fears of a financial collapse have receded “substantially.” However, he had several caveats, noting that there are still strains in the global financial markets, that financial institutions likely face more losses, that credit is likely to be tight, that the rebound is likely to be slow at first, and that unemployment will decline only gradually. As for regulatory reforms, he advocated a macro prudential approach to monitoring interdependencies of firms.
There really wasn’t anything new in his rundown of the crisis, as we suspected, and there will be no Q&A.
Beth Ann Bovino, Standard & Poor’s
Existing-home sales jumped 7.2% to a 5.24 million unit annual pace in July, and the fourth straight monthly increase. The reading was much better than the 5.0 million expected by markets and was also well above January’s 4.49 million trough. It is 5% above the 4.99 million unit pace seen in July 2008. Single-family sales rose 6.5%, month-over-month, and are 5% higher than last July. Condo/co-op sales jumped 12.5%, month-over-month, and are up 5.9% over last July.
The months’ supply of homes held at a still-high 9.4, though down from the 11 reading seen last July. The median sales price fell to $178,400 from $182,000, and is down 15.1% over last year. The still high months’ supply of unsold homes should put further downward pressure on prices.
The report is better than expected, to add further support to news that the housing sector is stabilizing.
Marc Chandler, Brown Brothers Harriman
The U.S. dollar is on its back foot. Boosted by stronger than expected [euro zone business sentiment] readings, the euro is at new highs for the week … [N]ews that China may be raising the capital requirements for its banks appeared to inject some uncertainty in the regional markets, though Chinese equities continued to recover from their recent slide.
Sentiment toward the dollar broadly remains poor, with recent comments by PIMCO portfolio managers and former World Bank economists and general curmudgeon Joseph Stiglitz questioning the dollar’s reserve status adding to the angst. The yen has participated in the move against the greenback, helped by talk of strong Japanese corporate interest to sell dollars.
Jan Hatzius, Goldman Sachs
The continued high level of jobless claims prompts us to take a closer look at this part of our “Road Map for the First Stage of Recovery.” Whereas in the business cycles of the 1960s-1980s both new and continuing claims moved down steadily after the recession’s end, in more recent cycles (beginning in 1991 and 2001) the pattern was different. In these cycles, new claims moved down 10%-15% in the first few months after recession, then stuck stubbornly at that level for up to 18 months longer. A similar pattern was observed for continuing claims. The critical period during which “jobless recoveries” became evident in the claims data was 4-12 months following the trough of the recession, a period which we expect to correspond roughly to Q4 2009-Q2 2010.
Since we expect the labor market to behave in a similar fashion this time, we think jobless claims could remain in the 500,000-550,000 range well into next year; a move well below 500,000 would correspond to a more “traditional” recovery in employment.
Sales of Existing U.S. Homes Leap Higher
Published: August 21, 2009
Sales of previously owned homes surged in July as buyers stormed back to the market, taking advantage of falling prices, lower interest rates and a tax credit for first-time homeowners, an industry group reported on Friday.
The New York Times
Today’s Business: Jack Healy on Rising Home SalesSales of condos and single-family homes each rose for the month, and the overall number of existing home sales rose 7.2 percent in July from June, the National Association of Realtors reported. It was the largest monthly gain since the group began tracking existing home sales in 1999.
Moreover, home sales last month were 5 percent higher than in July 2008. Homes were selling at a seasonally adjusted annual rate of 5.2 million in July, up from a rate of 5 million last year.
It was the first year-over-year increase in home sales since November 2005.
“I’m a little bit flabbergasted,” said Patrick Newport, an economist at IHS Global Insight. “These are really good numbers.”
Some 30 percent of the homes sold in July were distressed properties like short sales or foreclosures, but that is a lower percentage than in previous months, when nearly half of all existing-home sales were estimated to be foreclosures.
Over all, economists said, Friday’s numbers offered another signal that the housing market was climbing out of the basement, even as foreclosures and delinquencies creep higher amid rising job losses.
Existing home sales — which make up the bulk of home sales — have risen over the last four months after crashing to record-low levels during the collapse of the housing market last year.
Sales of new homes rose 11 percent in June from a month earlier and are up since the winter, even though they are sharply lower than in the peak years of the housing boom. And sale prices for single-family homes are starting to stabilize in some of the country’s most distressed markets as bargain-hunters snap up distressed properties and cheap foreclosures.
The median sale price of homes nationwide fell to $178,400, and more homes poured onto the market as foreclosures increased and sellers detected a hint of enthusiasm among buyers.
Lawrence Yun, chief economist at the Realtors’ association, cheered the latest numbers.
“The housing market has decisively turned for the better,” he said in a statement.
Existing Home Sales in U.S. Jump to Two-Year High (Update4)
By Shobhana Chandra
Aug. 21 (Bloomberg) — Sales of existing U.S. homes jumped more than forecast in July to the highest level in almost two years, signaling the housing crisis that crippled the world’s largest economy is easing.
Purchases climbed 7.2 percent to a 5.24 million annual rate, the most since August 2007, the National Association of Realtors said today in Washington. The gain was the biggest since records began in 1999. The median price fell 15 percent.
Foreclosure-driven declines in prices, government credits for first-time buyers and near-record-low borrowing costs may keep stoking demand, helping the economy recover from the worst recession since the 1930s. At the same time, more Americans will probably lose their homes as companies cut payrolls, indicating a rebound will be slow to take hold.
“More and more buyers are becoming convinced that there is not a lot of downside left in the housing market,” said Ellen Zentner, a senior economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “We can count on housing no longer being a drag. The economic recovery is on track.”
Stocks jumped and Treasury securities dropped after the report added to evidence the housing market was turning. The Standard & Poor’s 500 Index closed up 1.9 percent at 1,026.13 in New York. The S&P builder supercomposite index was up 3.6 percent. The yield on the 10-year note jumped to 3.57 percent at 5 p.m. from 3.43 percent late yesterday.
Exceeds Forecast
Existing home sales were forecast to rise to a 5 million annual rate, according to the median forecast of 64 economists in a Bloomberg News survey. Estimates ranged from 4.8 million to 5.25 million. June’s pace was unrevised at 4.89 million.
Sales had reached a 4.49 million pace in January, their lowest level since comparable records began in 1999.
Purchases of existing homes increased 5 percent compared with a year earlier. The median price dropped to $178,400 from the $210,100 in July 2008.
“We are bouncing back,” Lawrence Yun, the NAR’s chief economist, said in a press conference. Even so, “we still need to wait until year-end before we see price stabilization.”
The number of previously owned unsold homes on the market jumped 7.3 percent to 4.09 million in July, a “notable” increase that exceeded the historical average for the month, according Yun. Sellers who were waiting for the market to turn may now be putting their houses up for sale, he said.
At the current sales pace, it would take 9.4 months to sell those houses, the same as in June. A seven months’ supply is usually consistent with stabilization in prices, Yun said last month.
Distressed Sales
The share of homes sold as foreclosures or otherwise distressed properties held at 31 percent in July, he said.
Today’s report showed sales of existing single-family homes increased 6.5 percent to an annual rate of 4.61 million. Sales of condominiums and co-operatives climbed 13 percent to a 630,000 rate.
Purchases increased in three of four regions, led by a 13 percent jump in the Northeast.
The figures are compiled from contract closings and may reflect purchases agreed upon weeks or months earlier. Many economists consider new-home sales, recorded when a contract is signed, a more timely barometer of the market.
The Commerce Department may report next week that purchases of new houses rose in July to the highest level since November, according to the Bloomberg survey.
Cutting Costs
Home Depot Inc., the largest home-improvement retailer, is among businesses cutting costs to ride out the housing recession. The Atlanta-based company reported second-quarter profit that fell less than analysts estimated and raised its annual earnings forecast after trimming expenses, even as it projected a sales decline for the year.
“Performance across most of our regions is better,” Chief Executive Officer Frank Blake said on a conference call with analysts on Aug. 18. “But caution is still appropriate,” and “we remain concerned by the high level of foreclosure activity,” he said.
About $3.4 trillion worth of houses are at risk of default because the owners owe more than the property is worth, Santa Ana, California-based First American CoreLogic said last week. By putting more homes on the market, foreclosures are keeping inventory higher than levels consistent with stable prices.
Obama administration efforts to revive housing include an $8,000 federal tax credit for first-time buyers who complete the transaction before Dec. 1. The government also is offering lenders incentives to modify the terms of delinquent mortgages, and the Federal Reserve is buying mortgage-backed securities to help reduce borrowing costs.
The first-time buyers accounted for about 30 percent of sales last month and the government’s credit is having a “significant impact,” the NAR’s Yun said.
To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net
Last Updated: August 21, 2009 17:10 EDT
Stumble Upon
Del.icio.us
Buzz
Trackbacks /
Pingbacks