|The most recent key indicators, Consumer Confidence, S&P Case-Shiller Index, New Home Sales and the FHFA House Price Index all showed improvement this last week. The Conference Board’s Consumer Confidence Index in particular has now risen four months in a row to 92.4–a seven-year high for the second straight month.
The signs for the overall economy’s recovery seem to point to steady improvement. This should bode well for the real estate and lending industries, but as is always the case, there could be a wild card played that could send us in the other direction.
One of the ways to dig deeper into these key indicators is to look for trend lines. For instance the Consumer Confidence Index didn’t merely rise this past month, but has risen 4 straight months in a row. Taken by itself as a one month statistic (and comparing it to last month) may not give us as clear a picture as we need to analyze it’s meaning.
Some indicators are based on a moving average. The S&P Case-Shiller Index for Home Price Values–very likely the most esteemed such index in the real estate industry–is a three-month moving average, for example. Thus, the shorter-term spikes and plunges are smoothed out, resulting in an index that is less likely to confuse us with a diet of highs and lows.
New Home Sales, on the other hand, is one of the most volatile and often re-adjusted indicators. Compiled by the Census Bureau, this is an indicator that would benefit from using a moving average.
But there is something that amateur housing economists can address with some success. Instead of jumping whenever the Census Bureau speaks on the subject of newly-constructed homes, we can keep a 4-month (or 3-month, if you prefer) moving average of these totals and thus be allowed to watch the sales data move in a more sober fashion, which is what conservative economists use if the data appears volatile.
Now, admittedly, not every reader of these words will immediately begin to record a four-month moving average to offset the wild variations in the new home sales data (and other peculiarly volatile data). The important thing to do, in any case, is to realize that the report of new home sales is a bit less than reliable and therefore, it shouldn’t send us running for cover each time it is full of odd surprises.
Overall, the economy based on the current indicators and the recent trends, seems to be gaining strength and is on a positive path to recovery.
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