Consumer confidence and existing home sales rise

WASHINGTON -- The U.S. economy is ending the year with a hopeful set of reports showing that consumer confidence soared in December and the worst of the downturn for the battered housing market may be over.

The Conference Board reported Thursday that consumer confidence shot up to an eight-month high of 109.0 in December.

That was only slightly below last April's 109.8, when confidence had hit the highest point in four years before soaring gasoline prices and a slumping housing market took their toll on Americans' perception of the future.

Meanwhile, the National Association of Realtors reported that sales of existing homes edged up 0.6 percent in November to a seasonally adjusted annual rate of 6.28 million units, after a 0.5 percent rise in sales in October.

It marked the first back-to-back increases in sales of existing homes since the spring of 2005 and followed news Wednesday that sales of new homes rose 3.4 percent last month.

The better-than-expected showing for both new and existing home sales could be signaling that this year's severe slide in housing is starting to bottom out, analysts said.

However, they cautioned not to expect a sharp rebound. Rather, they said they look for prices to continue falling for several more months as sellers are forced to trim their asking prices more in the face of near-record levels of unsold homes.

For October, the median price for an existing home fell for a record fourth consecutive month, dropping to $218,000, down 3.1 percent from a year ago.

David Lereah, the Realtors' chief economist, estimated that each 1 percent fall in home prices brings an additional 50,000 buyers into the market.

The stronger-than-expected performance of consumer confidence and home sales failed to bolster Wall Street, where investors worried that the newfound economic strength will mean that the Federal Reserve will not feel any urgency about cutting interest rates in the early part of 2007.

The Dow Jones industrial average fell 9.05 points to close at 12,501.52.

Housing had been the economy's standout performer as the lowest mortgage rates in four decades gave the country five straight years of record sales of both new and existing homes.

This year sales of existing homes should fall by about 9 percent with a smaller 1 percent decline expected in 2007, Lereah said.

He said that one-fourth of the country, the formerly hottest markets in such areas as California and Florida, will see prices decline further while the other three-fourths of the country will see sales and prices keep rising.

Other economists cautioned that while they believe housing has hit bottom, it could be a prolonged period of weakness that will last for much of next year, given the size of inventories that must be reduced.

"A lot of people who had been sitting on the sidelines are beginning to move back into a buying mode, but we don't look for things to turn up significantly until next summer," said Nariman Behravesh, chief economist at Global Insight.

The backlog of unsold existing homes dropped 1 percent in November to 3.82 million units, which represented a 7.3-month supply at the current sales pace.

The rise in the consumer confidence readings was a good sign that the housing slowdown was not more seriously affecting consumers' willingness to spend money, analysts said.

The fear had been that the severe slump in housing would cause people to stop spending and possibly contribute to an outright recession, much as the bursting of the stock market bubble in 2000 helped trigger the 2001 downturn.

"The latest data show us that the economic expansion remains firmly intact at year's end," said Mark Zandi, chief economist at Moody's Economy.com. "Consumers have jobs, gasoline prices are down and the stock market is up so people feel good."

But some analysts cautioned that it would take more increases in consumer confidence to be sure that the economy is on a sound footing.

"Given the seesaw pattern in recent months, it is too soon to tell if this boost in confidence is a genuine signal that better times are ahead," said Lynn Franco, director of the Conference Board's consumer research center.

There was good news on jobs Thursday as the Labor Department reported that the number of laid off workers filing applications for unemployment benefits rose by only 1,000 last week to 317,000. That's a level that analysts said indicated the job market was remaining strong in spite of the slowdown in overall economic growth.

By region of the country, sales of existing homes were down 1.6 percent in the South and unchanged in the Midwest while sales shot up by a strong 6 percent in the Northeast and were up 0.8 percent in the West.

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On the Net:

Existing home sales: http://www.realtors.org

Consumer confidence: http://www.conference-board.org