Research & Advice

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Start of a Housing Bottom

January 26, 2007 Data as provided by Ned Davis Research

Existing Home Sales Slip

Existing home sales slipped 0.8% in December to a 6.22 million annual rate, below the consensus for a 0.5% drop to 6.25 million, even though mortgage rates continued to fall. A 2.1% rise in condo sales was more than offset by a 1.3% decline in singles.  Sales were mixed by region, falling sharply in the West (all singles), modestly in the Northeast, but rising in the Midwest and South.  On a y/y basis, the sales decline continued to moderate, rising to -7.9%.  Singles were off 7.2%, while condos were down 12.2%.  For the full year, sales were off 8.4% to 6.48 million, the biggest drop since 1982. 

A seasonal drop in inventories caused the months’ available supply to fall to 6.8, its lowest level in six months.

Prices were flat with a year earlier . For the full year, prices were 1.1% higher than 2005.  On an inflation-adjusted basis, prices have fallen for the first time since 1995.

Labor Market Stay Steady and Tight

Unemployment claims remain volatile, rebounding 36,000 to 325,000 last week. Economists were expecting a rise of 20,000 to 310,000, as the prior week’s claims were revised down by 1,000.  The MLK holiday and bad weather may have caused some difficulty in seasonally-adjusting the numbers.  The 4-week average, which is a better indicator of trends at this time of year, ticked up to 309,000, but is still down about 20,000 from its recent peak at the end of November.  Continuing claims fell 39,000 to 2.484 million, after a downward revision of 7,000 from the week before, keeping the insured unemployment rate at 1.9%.

Mass layoffs fell slightly in December and were little changed from a year ago. Motor vehicles and construction led the way.

The Help-Wanted Ads Index rose four points in December to 33, generating a new expansion signal for the economy, but was still five points below a year ago.  It was the biggest rise since January 2005.  Over the past three months, ads rose in seven of the nine regions, indicating a firming of labor demand.

KC Manufacturing Eases Further

The Kansas City Fed reported its production index fell to 5 in January, down from an upwardly revised 7 in December, the lowest reading since July 2005.  Expectations for future production eased slightly to 25, from an upwardly revised December index of 29.  Both indexes show a downward trend since mid-2004, indicating a gradual slowing of manufacturing activity in the district.

Strong Dealer Demand for 2-Year Notes

On Wednesday afternoon, the Treasury auctioned $20 billion in 2-year notes at a rate of 4.930%.  Dealer demand was strong, as the bid/cover ratio climbed to 3.03, the most since November 2000.  The tail narrowed 0.5 bp to 2.0 bp.  Yet, other demand, including foreign central banks, appeared lackluster, as indirect bids fell to 27% of competitive bids, but that was comparable to a year ago.  Noncompetitive tenders rose $120 million to $885 million.