Housing, the weakest leg of the metaphorical stool holding up the U.S. economy, is finally firming, or so it seems to investors, economists, real estate agents and builders after a string of heartening reports this year.
Residential lending indicators look relatively stable compared to what we saw following the financial crisis, said Sarah Watt, economic analyst for Wells Fargo Securities. Watt and Wells chief economist JohnSilvia issued a note earlier this month that analyzed data from the latest Federal Reserve survey of bank lending practices, which polls senior loan officers across the country.
Among the highlighted findings: a near stabilization between the growing level of demand for residential loans and looser lending standards, which the note says may be surprising to some, but ... suggests that the prime mortgage market is near balance.
It allows the borrower to come to the table knowing the demand is going to be met, Watt said.
The stabilization is not only being reflected in bank branches, but also in Wall Street deal-making and Main Street groundbreakings. A more positive view of Americans' willingness and ability to make the mortgage is whetting investor's appetite for mortgage-backed securities, the securitized assets whose precipitous collapse in value from 2007 on prompted the global financial crisis. Banks are even happily snapping up the toxic waste assets the Federal Reserve took from AIG in the 2008 bailouts.
On the home front, monthly housing starts data has now had three months of expectation-defying results. While the rolling three-month average, at just under 700,000, is low by historical standards, it is a vast improvement from the numbers seen for most of the past three years.
Like other leading indicators, the positive data points are heavily dependent on expectations, and do seem more optimistic than measures more closely tied to current conditions. Existing home sales figures reported by the National Association of Realtors, for example, have been highly volatile recently, with numbers almost invariably revised downwards -- sometimes sharply so -- after initial readings. The percentage of distressed property sales and cancelled deals is still very high.
Here's a look at how some other areas of the economy are faring:
Employment. New weekly claims and continuing claims were narrowly less than economists anticipated Thursday, continuing a positive, albeit moderate, improvement. The number of people continuing to claim unemployment dropped to 3.4 million last week, the first time that figure has been so low since August 2008, before the collapse of Lehman Brothers worsened the global financial crisis. The number of jobs created in the past few months, led by a recovery in manufacturing, has surprised many forecasters. The question now is whether that job creation can keep up with the many discouraged workers who, encouraged now by positive economic developments, are likely to rejoin the labor force. Many are skeptical on this last point. With unemployment currently at 8.3 percent, Jan Hatzius, chief economist at Goldman Sachs, sees the rate remaining at 8.2 percent until at least 2014.
Inflation. The price stability picture is mixed at the moment, with a spike in gasoline prices and overheated food prices hurting consumers. Less volatile core prices are mostly in line with the expectations of economists and central bankers. Over the past 12 months, core CPI has increased 2.3 percent, slightly more than Federal Reserve targets of two percent.
Business confidence. The Philadelphia Fed business outlook survey improved and showed further acceleration of manufacturing activity, especially in unfilled orders. Hiring continued to grow, though not as frothily as in January. Businesses are optimistic about the future, and while current output signals are not as giddy as forthcoming expectations, the current numbers are still gradually improving. Manufacturers are also happy about producer prices, which are tracking at a level lower than core inflation.