Home Sales Edge Down in February; U.S. Banks Pass Fed Stress Tests; Conference Board’s Leading Indicators More Positive

Existing home sales dropped by 0.4 percent month over month in February. The Federal Reserve reported that almost all of the 30 largest banks in the U.S. passed its stress tests. And the Conference Board’s Leading Economic Index for the U.S. increased 0.5 percent in February.

Existing home sales dropped by 0.4 percent month over month in February, according to the National Association of Realtors on Thursday, to an annualized rate of 4.6 million units, compared with 4.62 million in January. The February 2014 rate is also 7.1 percent lower than the same month last year. In fact, it was the lowest monthly rate since July 2012.

Total U.S. housing inventory at the end of February rose 6.4 percent to 2 million existing homes available for sale, which represents a 5.2-month supply at the current sales pace, up from 4.9 months in January. Unsold inventory is 5.3 percent above a year ago, when there was a 4.6-month supply, said the NAR.

The Realtors’ chief economist, Lawrence Yun, tried to put a good face on the situation by citing problems caused by the hard winter, along with other factors dragging the market. “Some transactions are simply being delayed, so there should be some improvement in the months ahead,” he said in a statement. “With an expected pickup in job creation, home sales should trend up modestly over the course of the year.”

U.S. Banks Pass Fed Stress Tests

The Federal Reserve reported on Thursday that almost all of the 30 largest banks in the United States (29 out of 30) passed its stress tests, or as the central bank put it, they “are collectively better positioned to continue to lend to households and businesses and to meet their financial commitments in an extremely severe economic downturn than they were five years ago. This result reflects continued broad improvement in their capital positions since the financial crisis.”

The Fed tested how the banks would do in a hypothetical but all-too scary scenario (something like a rerun of 2008-09) that features a deep recession with a sharp rise in the unemployment rate, a drop in equity prices of nearly 50 percent, and a decline in house prices to levels not seen in 2001. In such a bad-case scenario, the 30 bank holding companies’ loan losses would total $366 billion during the nine quarters of the hypothetical stress scenario.

That would damage the banks, but not destroy them. “The aggregate … common capital ratio, which compares high-quality capital to risk-weighted assets, would fall from an actual 11.5 percent in the third quarter of 2013 to the minimum level of 7.6 percent in the hypothetical stress scenario,” the Fed said in its statement. “That minimum post-stress number is significantly higher than the 30 firms’ actual… common ratio of 5.5 percent measured in the beginning of 2009.”

Conference Board’s Leading Indicators More Positive

The Conference Board’s Leading Economic Index for the U.S. increased 0.5 percent in February to 99.8 (2004 = 100), following a 0.1 percent increase in January, and a 0.1 percent decline in December. According to Conference Board economist Ataman Ozyildirim, the increase suggests that any weather-related volatility will be short lived and the economy should improve into the second half of the year. Large increases in housing permits and the interest rate spread more than offset decreases in the workweek in manufacturing, consumer expectations, and rising initial claims for unemployment insurance.

Wall Street seemed happy again on Thursday, with the Dow Jones Industrial Average gaining 108.88 points, or 0.67 percent. The S&P 500 was up 0.6 percent and the Nasdaq advanced 0.27 percent.