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Economic Watch: New Home Sales Slide, Fed Eases Back on Economic Stimulus

December 19, 2013

By Evan Lockridge

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UPDATED -- Existing home sales in the United States have fallen for the third straight month, according to the National Association of Realtors, but it’s not due to lack of interest from prospective buyers.

The 4.3% drop to a seasonally adjusted annual rate of 4.9 million in November from 5.12 million in October is also 1.2% below the 4.96 million-unit pace in November 2012. This is the first time in 29 months that sales were below year-ago levels.

The group expects total sales this year will be 5.1 million, which would be the strongest since 2007, when the housing bubble burst, but is below the 5.5 million generally associated with a healthy housing market.

“Home sales are hurt by higher mortgage interest rates, constrained inventory and continuing tight credit,” said Lawrence Yun, NAR chief economist. “There is a pent-up demand for both rental and owner-occupied housing as household formation will inevitably burst out, but the bottleneck is in limited housing supply, due to the slow recovery in new home construction. As such, rents are rising at the fastest pace in five years, while annual home prices are rising at the highest rate in eight years.”

Also on Thursday a new report from the private research group, The Conference Board, shows its Leading Economic Index for the U.S. increased 0.8% in November to 98.3, following a 0.1% gain in October and a 1.0% hike in September. The measure is used to gauge the state of the economy three to six-months down the road.

“The LEI continues on a broad-based upward trend, suggesting gradually strengthening economic conditions through early 2014,” said Ataman Ozyildirim, economist at The Conference Board. “Improving labor markets and new orders in manufacturing, combined with strong financial indicators, drove November’s gain. However, consumers’ outlook for the economy and the drop in housing permits continue to pose risks in 2014.” 

November’s numbers also reflect a U.S. economy that is expanding modestly, discounting some renewal in activity after the government shutdown, according to Ken Goldstein, economist at The Conference Board.

“The coincident economic index shows the economy expanding at a relatively slow pace,” he said. “The trend in the leading economic index is stronger, signaling for some time that the economy is developing forward momentum, and will continue to strengthen through early 2014.”

The news comes as the Federal Reserve on Wednesday announced it is scaling back on its economic stimulus program by tapering down its $85 billion bond buying program each month by $10 billion.

Federal Reserve Chairman Ben Bernacke said afterwards the economic recovery is "far from complete," but if jobs gains continue as expected, the bond purchases would likely continue to be cut at a next year.

“In other words, the [Federal Reserve] is well aware that the U.S. economy is not yet out of the woods and remains data dependent, not just in terms of the pace of tapering going forward, but also if inflation fails to show promising signs of reversing course back towards the committee’s 2% target, the Fed is prepared to take necessary action,” said Lindsey Piegza, chief economist at the investment firm Sterne Agee.

The Fed’s decision got a more than positive reception from Wall Street with the Dow Jones Industrial Average on Wednesday hitting an all-time high.

Update adds Leading Economic Indicators.

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