Economic Week in Review: Real estate rebound may be for real

In a light week for economic news, positive developments on the real estate front dominated the headlines. Numbers were up for existing-home sales and new-home construction. In the only other report issued this week, The Conference Board's index of leading indicators fell slightly. For the week ended September 21, the S&P 500 Index decreased 0.4% to 1,460 (for a year-to-date total return—including price change plus dividends—of about 18%). The yield on the 10-year U.S. Treasury note fell 11 basis points to 1.77% (for a year-to-date decline of 12 basis points).

Existing-home sales show improvement

Sales of previously owned homes jumped 7.8% to an annual rate of 4.82 million, an indication the housing market's long-awaited rebound may be under way. Lawrence Yun, National Association of Realtors chief economist, said buyers are reacting to better conditions. The national median existing-home price rose to $187,400 in August, the first time prices climbed six straight months since December 2005 to May 2006. Sales were up in all four of the nation's regions. Single-family home sales advanced 8%, while condominium and co-op sales increased 6.1%. Housing inventory grew 2.9% in August, but the number of months it would take to sell the entire inventory of homes at the current sales pace fell to 6.1 months from 6.4 months.

Housing starts resume rise

Construction of new residential homes climbed 2.3% to an annual rate of 750,000 in August, although the dip in July's numbers was revised downward by almost 2% more. Housing starts are 29% higher compared with a year ago, but they are still well below levels seen before the downturn.

"Housing starts reflect both the deep adjustments the housing market has gone through and how much progress has been made since the crash," said Roger Aliaga-Díaz, Vanguard senior economist. "The growth in housing starts since last year is great news, but at 750,000 we're still only half of the way to the normal pace of housing construction."

All of August's gains came from single-family housing starts, which rose 5.5%, while multi-family starts declined 4.9%. The Midwest led the gains on a regional basis, with starts also up in the South but down in the Northeast and the West. Housing permits, an indicator of the pace of future construction, fell 1% from July but are ahead nearly 25% from a year ago. Completions increased 0.7% from July and 11.7% from a year ago.

Leading economic indicators dip

The Conference Board's index of leading indicators retreated 0.1% in August, its third decline in the last six months after a revised 0.5% bump in July. Despite an uneven path over the past six months, the index is still up 1.5% compared with a year ago. Five of the index's ten components fell, with worsening consumer expectations for business conditions and a shorter workweek leading the decline. On the positive side, new orders and interest rate spread helped the index the most.

"The economy continues to be buffeted by strong headwinds domestically and internationally," Conference Board economist Ken Goldstein said in a statement. "As a result, the pace of growth is unlikely to change much in the coming months. Weak domestic demand continues to be a major drag on the economy."

The economic week ahead

In focus in the coming week will be Thursday's release on the U.S. gross domestic product (GDP), a measure of the nation's economic output. Also on the docket are reports on consumer confidence (Tuesday), new-home sales (Wednesday), durable goods (Thursday), and personal income (Friday).