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US: First signs of stabilization in the housing market

Wed, Aug 27 2008, 07:23 GMT
by KBC Market Research Desk

KBC Bank

The S&P Case-Shiller house price index fell 15.92% Y/Y in June after a 15.78% Y/Y decline in May, which is slightly better than the consensus (-16.2% Y/Y). The 3- months annualized figure is showing an improvement from -25.98% in March to - 10.05% in June. Recently, the month-on-month declines became smaller which indicates that the downtrend is slowing and first signs of stabilization are now confirmed, also in the most distressed regional housing markets.

New home sales rose 2.4% M/M in July to an annual 515 000 units, while the June figures were sharply downwardly revised from 530 000 to 503 000, the lowest since September 1991. Taking revisions into account, sales were somewhat weakerthan- expected. Regionally, sales were higher in the Northeast and West and lower in the Midwest and South. Looking at inventories, the total number of homes for sale fell from 439 000 in June to 416 000 in July, while the months’ supply fell from a revised 10.7 in June to 10.1 in July. This is the good part of the report as any recovery need to be preceded by a leaner inventory of unsold homes (maybe around 300 000), which will apparently still take many months to achieve. Median prices fell 6.3% Y/Y and mean prices declined a more modest 4.1% Y/Y. In the housing market, also sales may be starting to stabilize and inventories are lower.

Consumer confidence extended its rebound, and made further gains in August. The headline index came out at 56.9 against 51.9 in July, while a more modest improvement of 53.0 was expected. Expectations improved (52.8 from 42.7) on lower energy prices, but the present situation deteriorated (63.2 from 65.8). Consumers now expect business conditions to improve over the next six months, but labour market conditions to worsen over the next six months. So all in all, while a positive surprise, the underlying features still paint a bleak picture for the consumer sector.

The Richmond Fed manufacturing index held stable at a depressed -16, the fourth month of contraction and defying expectations of a relative improvement to -10. Most sub-indices were negative, but price indices showed some moderation. The outcome is not that far away from similar surveys in other regions.

EMU: German business confidence hits lowest level in three years

In Germany, the August IFO report showed a sharp deterioration in business climate (94.8 from 97.5), while a more modest decline (97.2) was expected. Both sub-indices were falling, current assessment from 105.7 to 103.2 and expectations from 90.0 to 87.0, while the consensus was seeking for a slight improvement in expectations. The climate cooled off further in the manufacturing, retail and construction sector. These back-to-back declines remind us of scenarios seen in the run-up to previous recessions in the early ninety’s and after the turn of the century. GfK consumer confidence for September also came out weaker-than-expected at 1.5, against a revised 1.9 in August, especially the economic outlook deteriorated sharply (-21.8 from -8.0). More bad news came from the final Q2 GDP figures where private consumption was downwardly revised from -0.4% to -0.7% and capital investment from -1.5% to -1.9%. While offset by an upward revision of construction and net export, the composition of GDP was worse than in the initial release.

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Published on  Wed, Aug 27 2008, 07:29 GMT