Upside Surprise on New Home Sales, Slight Rise in Sentiment.

Posted by Diane Swonk on February 24, 2012

New home sales slipped to a   321,000 unit rate in January, but surpassed expectations for 315,000. Although those figures are still a far cry from the 700,000 plus we should be seeing, this many years into a recovery, they are nonetheless encouraging. They followed upward revisions to the end of 2011, which showed that the new housing market was in slightly better shape at the end of the year than initially reported and helped to take the supply of new homes on the market to well below six months, which is considered quite tight. Perhaps most encouraging was a firming in the price of new homes sold, which moved up from $217,100 in January from $216,500 in December, but remains suppressed from a year ago.

Separately, consumer sentiment rose from 75 in January to 75.3 in February, the highest level since February of last year. All of that improvement came in the second half of the month and reflected everything from a more robust stock market to hopes that the job market is improving. The percentage of consumers reporting that they heard of new job openings – more than a third – was particularly large and encouraging. The downside was individuals’ views about their own current financial conditions, which declined in the face of higher energy prices. Indeed, surging prices at the pump are probably the largest single threat to the economy today and complicating policy decisions for the Federal Reserve. Long-term inflation expectations also moved up in response to recent saber rattling in Iran.

Bottom Line: The recovery is slowly regaining some traction. There are no shortages, however, of obstacles to dodge in the road ahead.

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