May Pending Sales Data Indicate Continuing Housing Recovery
Another day, another positive housing indicator. For the past few months, we've been noticing the ways in which housing — for so long a drag on economic growth — has become a relative bright spot. Housing-related activity has been on the rise in the past year. And when activity rises, housing can become a meaningful contributor to overall economic growth, even if prices generally stagnate.
As we noted last week, for the past four quarters, residential investment has added to GDP. Last week, Census reported that new housing starts in May, while down from April, were up 28.5 percent from May 2011. Through the first five months of 2012, ground was broken on 289,800 new housing units, up from 228,600 in the first five months of 2012 — an increase of 26.8 percent. The National Association of Realtors reported that May existing home sales were up significantly from a year ago — with both the median price paid and volume rising.
Monday morning brought more positive news. The Census Bureau reported that new home sales for May 2012 came in at an annual rate of 369,000. By boom-era standards, that's ridiculously low. But look at the trend. May's new home sales were up 7.6 percent from April, and up an impressive 19.8 percent from May 2012. Through the first five months of 2012, new home sales are up 18 percent from 2011. New home sales are also running above the 2010 pace.
Tuesday, the National Association of Realtors reported that pending home sales rose significantly in May. The Pending Home Sales Index, which measures contracts signed (not closings) rose from 95.5 in April to 101.1 in May, an incrase of 5.9 percent. What's more compared wiht May 2011, the index was up by 13.3 percent in May 2012. Now, it's important not to reach too much into this data alone. As anybody who has gone through a home purchase or sale knows, a lot can go wrong between the signing of a contract and the closing. Nonetheless, here's another data point that indicates a substantially higher level of housing-related economic activity in 2012 compared with 2011.
Collateral Activity
One of the great things about home sales is that they spur a lot of collateral economic activity. Every time a house is sold, that's business for the title insurer, the mortgage broker, the real estate broker, the appraiser, the mover, an insurance agent and so on. Cities collect transfer and conveyance taxes. That's one of the reasons the housing boom was so beneficial to macroeconomic growth during the boom, and one of the reasons it was so detrimental to growth during the bust.
For the past several years, we've been able to blame housing for America's macroeconomic woes — and with good reason. The continuing flow of data that highlights rising activity, and some rising prices, suggests that housing's days of being a scapegoat may be coming to an end.
Daniel Gross is economics editor at Yahoo! Finance.
Follow him on Twitter @grossdm; email him at grossdaniel11@yahoo.com.
