By Kate Gibson
While focused in part on quarterly earnings and a report showing
a drop in consumer confidence, investors also found themselves
basking Tuesday in the afterglow of surprisingly positive data on
the U.S. housing market.
"When was the last time we've had good news on the housing
market? You really can cut prices to the point where volume will
move," said Owen Fitzpatrick, head of U.S. equity group at Deutsche
Bank, of the unexpected December increase in sales of existing
homes reported Monday.
The National Association of Realtors said there had been a 6.6%
rise in existing-home sales in December, with analysts chalking up
the drawdown in inventories to price discounts on foreclosed
properties, along with declining mortgage rates. .
"It appears some buyers are taking advantage of much lower home
prices. Buyers will continue to have an edge over sellers for the
foreseeable future," said Lawrence Yun, the Realtors' chief
economist.
On Tuesday, major stock indexes meandered in and out of positive
territory before closing with modest gains. Health care, financials
and information technology paced the gains, while telecommunication
services and consumer discretionary shares lagged.
The Dow Jones Industrial Average (DJI) rose 58.7 points, or
0.7%, to 8,174.73. The S&P 500 (SPX) climbed 9.14 points, or
1.1%, to 845.71, and the Nasdaq Composite (RIXF) added 15.44
points, or 1%, to 1,504.9.
"Outside of financials, the market is reacting fairly well to a
pretty dismal earnings season," said Fitzpatrick.
Equities investors offered little or no reaction to the S&P
Case-Shiller home price index, released before Tuesday's start of
trading.
The 20-city composite had home prices declining for a 28th
consecutive month in November. The drop proved in line with
expectations and also served to illustrate the fall in prices that
precipitated the increase in home sales last month. .
"The declines continue unabated as the influx of foreclosed
homes onto the market continues to put downward pressure on prices
from coast to coast," said Dan Greenhaus, an analyst at Miller
Tabak & Co.
"Further declines in prices mean further foreclosures and
defaults, and so on and so on. This is the inevitable result of the
gluttonous rise of home prices as houses became an asset class and
should be a welcome turn of events, no matter how painful it is,"
said Greenhaus.
The S&P Case-Shiller report translates into an 18% decline
in home prices for the 12 months ending in November, or a loss of
approximately $3.8 trillion in the market value of U.S. housing
stock.
Government statistics show household net worth fell more than
11% year-over-year through September, and "lower housing values
combined with equity market declines will surely drive the December
net-worth figures even lower," said Jack Ablin, chief investment
officer, Harris Private Bank.
But Ablin too finds a positive note amid the downbeat numbers:
"Our models show that median home prices on a national basis are at
'fair value' when gauged against the Consumer Price Index. Given
the erosion of the credit markets, there is no doubt housing prices
will overshoot to the downside, but we believe that most of the
damage is behind us on housing."
Meanwhile, investors found little reason to jump back into the
shares of homebuilders Tuesday. The S&P Homebuilders ETF (XHB)
fell, as the likes of Ryland (RYL), Pulte Homes (PHM) and Lennar
(LEN) slumped.
Not all equity analysts found much reason for cheer in either of
the housing reports released this week. "It is good news that
prices have come down, and as a result affordability has gone up,
and more people can afford a home. The bad news is, nobody has the
money," said Hugh Johnson, chairman of Johnson Illington
Advisors.
And, while falling prices may have bolstered December sales,
they can also harm the equities market and the economy at large.
"When investors see the values of their houses go down, and the
value of their stocks go down, it makes them more fearful, leading
to less spending, a decline in economic activity, and clearly
contributing to a lack of a desire to buy stocks."
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