US home prices closed out last year with the biggest annual gain in more than six years while sales of new homes spiked last month, the latest sign that the country’s long-suffering housing market was on the mend, data showed on Tuesday.
Meanwhile, US consumers grew more optimistic this month, even as payroll taxes rose and about US$85 billion worth of government spending cuts were due to take effect tomorrow.
“The numbers are all pretty strong. It’s a significant rise in confidence and a strong rise in new homes sales — there is not really much to argue in those numbers,” 4Cast Ltd economist David Sloan said in New York.
The S&P/Case Shiller Composite Index of 20 metropolitan areas showed home prices jumped 6.8 percent year-over-year in December last year, the biggest gain since July 2006, just before the bottom began to fall out of the US housing market.
Separately, US Department of Commerce data showed sales of new homes jumped 15.6 percent to a four-and-a-half year high. The percentage increase was the largest in almost 20 years.
Home prices have been rising since February last year, helping housing contribute to growth last year for the first time since 2005. Historically low interest rates have also enticed buyers and US Federal Reserve Chairman Ben Bernanke’s defense of central bank policy on Tuesday suggested those rates would not rise soon.
“There’s no doubt when you look at all the housing data that’s come out, it certainly paints a picture of continued improvement in that market,” Chase Private Client chief economist Anthony Chan said. “You have the best of all possible worlds: You have low mortgage rates, which are going to stay for a while, and you have price appreciation. You take those two things into account and you have a formula for further significant improvement.”
Major US stock indeces rallied, while US Treasury yields rose on the stronger-than-expected data.
Federal Deposit Insurance Corp data showing that the US banking industry recorded its highest earnings last year since before the financial crisis also contributed to the rosier economic outlook.
Consumers were certainly feeling more cheerful this month. The US Conference Board said its consumer confidence index rose more than expected this month as Americans shrugged off worries about higher taxes.
However, while Washington averted the full brunt of tax increases and spending cuts that were scheduled to go into effect this year, taxes did rise for some Americans and the payroll deduction holiday came to an end, leaving consumers with less spending money.
Last year, housing contributed to economic growth for the first time since 2005. Prices have been rising since February last year, as the supply of homes for sale tightened.
Investors buying cheap homes to be converted into rentals also supported the market and some struggling areas saw a sharp bounce back in prices.
However, the market is far from fully healed — about 20 percent of mortgages are underwater and foreclosure rates remain elevated.
“Housing won’t be a huge contributor to growth this year but we are on the long road to recovery,” said Michael Hanson, senior US economist at Bank of America Merrill Lynch.