Whether the so-called fiscal cliff gets resolved by Congress sooner or later, Santa’s sleigh will certainly have a few more houses to land on this year.
Housing and new residential construction have been a drag on the economic recovery for some time. In 2012, housing finally turned. Existing home prices are 10.9% higher year over year through October, while seasonally adjusted housing starts are the highest they have been since July 2008.
Going forward, expect housing starts to stay strong. The housing market index, a confidence indicator measuring the economic momentum and demand for housing, currently stands at a six year high. With nearly 900,000 new starts in the month of October, the robust industry conditions are likely to spur a ripple effect across a number of sectors, including homebuilders, mortgage lenders, raw material suppliers, and home furnishing providers. Of course, the need to rebuild in the aftermath of Hurricane Sandy will contribute at the margin to industry activity.
The strengthening housing market has contributed to higher overall consumer confidence, with this indicator having risen to a five-year high. The result heading into the holiday season will be a greater propensity to spend. Consumer spending makes up nearly two-thirds of the economy.
The stock market has gone higher this year in anticipation of the cyclical improvement in the economy, but it is quite possible that market participants have remained unduly cautious and may well be underestimating the magnitude of the recovery.
Indeed, in spite of the encouraging economic signs, November brought a modest weakening in the market averages. Attention turned immediately from the election to the resolution of the fiscal cliff, with many assuming that Congressional leaders would continue to be beset with gridlock and uncompromising positions on the key issues. Actual rhetoric coming out of Washington has been encouraging, with most believing that cooler heads will prevail and that no one is willing to allow inaction to adversely impact the recovering economy. ...