Commentary ~ July 26, 2013
The first thing to catch our eye this week is that gold, while still well below its value of a year ago, has taken a few sharp upward steps of late. With the dollar weakening slightly against other currencies, we may perhaps conclude that gold is regaining some of its luster as a safe haven alternative for investors who want to protect their wealth. Perhaps we also have a gauge here of the concerns about our economy shared by many investors across the world. (Important questions remains—like whether and how the sequester will end, and when the Fed will drop its support of lower interest rates through the quantitative easing program.)
Indeed, it seems that we are seeing contradictory indicators, though the strength of the real estate market continues to reassert itself—especially in the New Homes sector. The number of New Home sales in June rose by a striking 8.3% over those selling in the prior month. Meantime, builder confidence, as measured by the NAHB Market Index, rose sharply.
Still, Existing Home Sales declined by 1.2% from May to June. Bloomberg.com asserted that the spike in mortgage rates, taking them more than 1% higher in less than two months, most likely slowed potential home sales. This does not explain why New Home sales jumped to record highs, but builders at this point have a great deal working in their favor—especially the ability to limit or maximize the number of new homes coming to market, thus managing to control the supply/demand ratio.
Equally confusing, though, were the figures for new home starts released last week. Analysts looked at the apparent anomaly of obviously rising demand and falling supply and suggested that wet weather had slowed construction starts and, further, much of the slowing involved volatile multifamily home building.
Since starts for Single-Family Residences fell by only 0.8%, it becomes more plausible that builders are meeting today’s demand very conservatively, unwilling to find themselves overbuilt as was the case several years ago.
Patrick Newport, of IHS Global Insight, suggested that New Home prices are likely to continue rising in the near future as the industry creates its supply of homes for sale rather slowly. We will very likely continue to find ourselves on an economic roller coaster—as do interest rates-for several more months, at the least. But the underlying trend for an improving real estate market seems to be holding on.