Economic Update – Home Prices See First Uptick in a Year

After the surprising announcement earlier this week that existing home sales jumped in February, the housing market got another bit of unexpected news on Tuesday, when the Federal Housing Finance Agency said that housing prices actually moved up a little in January 2009 compared with December 2008. The agency’s House Price Index increased 1.7 percent, representing the first time in fully a year that the index has not moved downward. This is good news, conceivably, but may or may not be a sign of an approaching bottom in the housing market. In a statement Tuesday, the FHFA said as much: “It also should be noted that sales volumes, in absolute terms, were relatively low in the month. Accordingly, the estimation imprecision associated with the January estimate is relatively large and subsequent revisions to the monthly figure could be significant.” So the devil isn’t just in the details, it’s in the “estimation imprecision.” Still, for what it was worth in the FHFA’s estimates, almost all of the regions in the United States saw an uptick in prices. Only the FHFA’s Pacific region–Alaska, California, Hawaii, Oregon and Washington–saw a further decline, of 0.9 percent. In a related vein, the Mortgage Bankers Association has revised its estimates of mortgage originations in 2009, now predicting that such lending will total $2.78 trillion for the year, $800 billion more than previously forecast. The organization cites low interest rates, as well as federal programs to encourage mortgage lending, as the driving factors in swelling mortgage origination. Wall Street shrugged off the news and ended somewhat lower on Tuesday, in a retreat from the strong gains on Monday. The Dow Jones Industrial Average was down 115.65 points, or 1.49 percent, while the S&P 500 was down 2.03 percent, and the Nasdaq was down 2.52 percent. The earnings season is winding down, but a few more reports straggled in this week, such as that of Williams-Sonoma Inc., which saw a 90 percent drop in profits during the three months ended February 1, 2009, compared with the same period a year earlier: $12.2 million, or 12 cents a share, compared with $124.6 million or $1.15 a share. That nevertheless beat Wall Street expectations, and so share prices for the company were up on Tuesday. Cutbacks in consumer spending of all sorts were evident in other retailer reports this week as well. Tiffany & Co. reported a 23 percent decline in comparable-store sales for its most recent quarter compared with the same period last year, and “that included extreme softness in the US and sluggish trends to one degree or another in other regions,” according to Mark Aaron, Tiffany vice president of investor relations, in the company’s conference call. That might be expected, since jewelry tends to be an expensive discretionary item. But even such lower-cost discretionary items–such as drive-through burgers, fries and shakes–are feeling the pinch, though perhaps not quite as much. Sonic Corp. reported this week that systemwide same-store sales were off about 3.6 percent for its most recent quarter, compared with a year ago.