January's real estate performance dominated last week's financial headlines, but was a mixed bag overall, with new home sales flagging while existing home sales showed solid gains. Sales of existing homes saw their third monthly increase, jumping to a seasonally adjusted annual rate of 5.36 million units for the month, according to last week's report from the National Association of REALTORS® (NAR).
This marked a 2.7 percent gain over December's downwardly revised 5.22 million-unit pace, and a 5.3 percent gain over January 2010's 5.09 million level. This was the first time in seven months that sales activity was higher than a year earlier.
January's increased pace came thanks to distressed sales and an "abnormally high" level of cash transactions, said Lawrence Yun, NAR's chief economist.
"The extremely favorable housing affordability conditions are a big factor, but buyers have been constrained by unnecessarily tight credit," Yun said. "As a result, there are abnormally high levels of all-cash purchases, along with rising investor activity.
"Increases in all-cash transactions, the investor market share and distressed home sales all go hand-in-hand," he continued. "With tight credit standards, it's not surprising to see so much activity where cash is king and investors are taking advantage of conditions to purchase undervalued homes."
Real estate purchases by investors accounted for 23 percent of January's sales, up from 20 percent in December and 17 percent in January 2010. All-cash sales rose to 32 percent in January from 29 percent in December and 26 percent in January 2010. Distressed homes edged up to a 37 percent market share in January from 36 percent in December, slightly down from January 2010's 38 percent.
The Census Bureau's report on new home sales for the month showed a downward trend, with sales of new single-family homes in January 2011 at an annual rate of 284,000, plunging 12.6 percent from December's revised December rate of 325,000 and 18.6 percent below January 2010's estimate of 349,000.
Economists chalked up part of January's drop from December's optimistic performance to the fact that buyers had finished capitalizing on a California homebuyer tax credit that ended with the close of 2010.
The median sales price of new homes sold in January was $230,600 and the average sales price was $260,300. The seasonally adjusted estimate of new houses for sale at the end of January was 188,000, representing a 7.9-month supply at the current sales rate.
On a more cheerful note, initial jobless benefits claims for the week ending February 19 dipped to 391,000 from the previous week's revised figure of 413,000, according to the Employment and Training Administration. The four-week moving average was 402,000, a decrease of 16,500 from the previous week's revised average of 418,500.
Perhaps the labor market's improvements — however slight — helped spur a continued uptick in the Consumer Confidence Index, which The Conference Board reported last week had continued to improve for February. After rising to 64.8 in January, the Index now stands at 70.4 (1985=100), marking a three-year high.
The Present Situation Index — how consumers feel the economy is doing right now — improved to 33.4 from 31.1. The Expectations Index — how consumers expect the economy will go in the near future — increased to 95.1 from 87.3 last month.
"Consumers' assessment of current business and labor market conditions has improved moderately, but still remains rather weak," said Lynn Franco, director of The Conference Board Consumer Research Center. "Looking ahead, consumers are more positive about the economy and their income prospects, but feel somewhat mixed about employment conditions."
This week, look for headlines on personal income and expenditures for January from the Bureau of Economic Analysis on Monday. This will be followed Tuesday by the Census Bureau's construction spending figures for January, as well as February's car and truck sales from the auto manufacturers.
Thursday will see the Bureau of Labor Statistics report on non-farm worker productivity and costs for the fourth quarter, and the week will finish with a flurry of information on Friday about February's non-farm payroll, average workweek, hourly earnings and unemployment rate from the Bureau.