Thursday, November 27, 2014
Inquirer Daily News

Snow fun buying a home in a winter

Economics in a nutshell: It's no fun visiting a construction site in the cold and snow and it looks like not a whole lot of people did that in December.

Snow fun buying a home in a winter

In this Friday, Dec. 27, 2013, photo, a construction worker builds a new home in Wilmette, Ill. The Commerce Department releases new home sales for December on  Monday, Jan. 27, 2014. (AP Photo/Nam Y. Huh)
In this Friday, Dec. 27, 2013, photo, a construction worker builds a new home in Wilmette, Ill. The Commerce Department releases new home sales for December on Monday, Jan. 27, 2014. (AP Photo/Nam Y. Huh)

INDICATOR: December New Home Sales

KEY DATA: Sales: -7%; 2013 vs. 2012: +16.4%; Prices (December to December): +4.6%; Prices (2012 vs. 2013): +8.4%

IN A NUTSHELL: "It's no fun visiting a construction site in the cold and snow and it looks like not a whole lot of people did that in December."

WHAT IT MEANS: We knew that this truly ugly winter (will it ever end?) was going to punish a lot of businesses and the residential housing market was assumed to be one of them. It had previously been reported that existing home sales had edged up in December but were on the somewhat soft side and now it appears that new home demand really took it on the chin from the weather. The fall off was greater than expected led by a huge (36.4%) drop in the Northeast. Strangely, there was a solid rise in the Midwest, the only region where sales actually increased. The South and West were also down sharply. For all of 2013, sales surged but the pace in new home demand has moderated in the same manner that we saw with existing homes. As for prices, while they rose solidly for all of the year, the increases have been decelerating with the fall off in demand.

MARKETS AND FED POLICY IMPLICATIONS: My guess is that the January market will be even worse since going out in the Polar Vortex was only for the foolhardy. If it is weather that is freezing out buyers, we have to take these data with a dump truck full of rock salt. Indeed, I suspect that is precisely how the Fed members will view the data when they start meeting tomorrow. The problem with the cold is that people will be spending an awful lot of money on heating and given that incomes are going nowhere, that money has to come from somewhere. Thus, while services spending may spike in the first quarter, consumption of other goods will probably be very weak. The weather is also reducing productivity and that has to be hurting overall economic activity. At least Super Bowl tickets are less expensive (but still ridiculous). I had expected first quarter growth to be near what we saw in the summer but it looks like I may have overestimated things. Of course, we could get a very warm February and that would turn the outlook around. In other words, if you think it is hard forecasting the economy when the weather is not crazy, imaging how impossible it is with these kinds of conditions. Nevertheless, I expect the Fed to continue the tapering process as what's another ten billion between friends. As for the markets, when you are on a roll, you are on a roll and the markets are rolling downhill right now. Those who think the 25% rise in stock prices last year was rational (especially given the U.S. economy grew by maybe 2%) and there is absolutely no reason to worry about a correction probably also thinks there were no dot.com or housing bubbles.

About this blog
Joel L. Naroff is the president and founder of Naroff Economic Advisors, a strategic economic consulting firm in Bucks County. He advises companies across the country on the risks and opportunities that economic developments may have on the organization’s operating environment. An accomplished public speaker, Joel’s humor and unique ability to make economics understandable have brought him a wide following. Reach Joel at joel@naroffeconomics.com .

Joel Naroff
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