This past week, the U.S. Commerce Department revised GDP for the fourth quarter of 2010 upward from 2.8% to 3.1%. However, the Thomson Reuters/ University of Michigan consumer sentiment index dropped to 67.5 in March from 77.5, its lowest level since Nov. 2009. Additionally, the National Association of Realtors reported that 1) the number of existing single-family home sales declined 9.6% from a year ago, 2) the number of existing condominium and co-op sales decreased by 10.0%, 3) the median price for single-family homes dropped by 4.2% and 4) condominium prices dropped by 11.1%. Additionally, the U.S. Census Bureau reported that February sale of new home dropped to its lowest level on record (which is tracked back to 1963), a seasonally adjusted annual rate of 250,000 single-family new homes.
MY TAKE: Given that consumer spending accounts for 70% of U.S. economic growth, these changes in consumer confidence and residential home sales are noteworthy. The overall weakness in housing is likely attributable to 1) high unemployment, 2) supply overhang, 3) the continuing foreclosure crisis and 4) a constrained mortgage credit environment. The implications are that many homeowners with a significant part of their saving invested in their home and owners of mortgage-backed securities may be at risk. The economic crosscurrent will likely persist. Corporate earnings have been strong in recent quarters and employment trends seem to be improving.