Bullish Consumers, Rising Home Prices Brighten U.S. Growth Picture

 Lucia Mutikani

 

U

.S.  consumer confidence surged to a six-year high in March and house prices increased solidly in January, positioning the economy for stronger growth after a weather-induced soft spot.

The upbeat outlook, however, was dimmed somewhat by other data on Tuesday showing new home sales at a five-month low in February, partly because of cold temperatures.

"The economy is showing signs of shaking off the weather effect. We are going to get a big lift to second-quarter growth from the weather," said Ryan Sweet, a senior economist at Moody's Analytics in West Chester Pennsylvania.

The Conference Board said its index of consumer attitudes rose to 82.3 from 78.3 in February. That is the highest level since January 2008, just as recession started to take hold, and it beat economists' expectations for a reading of only 78.6.

The jump in confidence bodes well for the economy's prospects, even though consumers were less upbeat about the labor market.

U.S. stocks and the dollar rose in response to the confidence report.

An unusually cold and snowy winter has held back the economy, disrupting activity ranging from hiring to spending and manufacturing. Growth in the first quarter is expected to have slowed considerably from the fourth-quarter's annualized 2.4 percent pace.

Separately, the S&P/Case-Shiller composite index of home prices in 20 metropolitan areas rose 0.8 percent in January on a seasonally adjusted basis. It followed a similar increase in December. Prices rose 13.2 percent from a year ago.

The house price gains, driven by a shortage of homes for sale, are bolstering household wealth and helping to support consumer spending.

"The broad-based recovery in home prices which started just under two years ago remains well under way," said Gennadiy Goldberg, an economist at TD Securities in New York.

"While home price appreciation is likely to slow later this year, the steady pace of home price gains should help further support the housing market recovery during the year."

WEATHER, TIGHT SUPPLIES HURT SALES

But the dearth of properties is also weighing on the housing market's recovery.

The Commerce Department said new home sales fell 3.3 percent in February to a seasonally adjusted annual rate of 440,000 units, the lowest level since last September.

Sales were off 1.1 percent from year-ago levels, the biggest year-on-year drop since September 2011.

Last month's drop brought new home sales in line with other data such as home resales and building activity that have offered a downbeat picture of the housing market.

Some of the slowdown has been blamed on the harsh weather, but the tight supply and a run-up in mortgage rates are also taking a toll.

While the 30-year fixed mortgage rate has dropped from a peak of 4.49 percent in September to about 4.30 percent in February, it remains a full percentage point higher than it was a year ago.

"Worsening affordability and still-tight inventory are leading more Americans to rethink home buying this year," said Ellen Haberle, an economist at Redfin in Seattle.

Though the number of new houses on the market was the highest since December 2010, inventory remains tight. At February's sales pace, it would take 5.2 months to clear inventories, up from 5.0 months in January and the most since September. A supply of 6.0 months is normally considered healthy.

Sales in the Northeast tumbled 32.4 percent, the biggest decline since October 2012 and an indication that severe weather continued to hurt activity.

Sales fell 1.5 percent in the South, which also experienced harsh weather. They surged 36.7 percent in the Midwest, but fell 15.9 percent in the West.

Source: Yahoo Finance