US home prices accelerated by the most in nearly seven years in March as the spring buying season gave the sector traction, while surging consumer confidence pointed to some resilience for the economic recovery. The data on Tuesday also suggested the two segments could act as buffers as the broader economy faces the pinch of belt-tightening in Washington.
The S&P/Case Shiller composite index of 20 metropolitan areas climbed 10.9 percent year over year, beating expectations for 10.2 percent. This was the biggest increase since April 2006, just before prices peaked in the summer of that year. Prices in the 20 cities gained 1.1 percent in March compared to the month before on a seasonally adjusted basis, topping economists' forecasts for a 1 percent rise.
The housing market turned a corner in 2012, several years after its far-reaching collapse. The recovery has picked up since as inventory has tightened, foreclosures eased and historically low mortgage rates have attracted buyers. A Reuters poll showed the recovery in the housing market likely has momentum through the rest of the year, with economists ratcheting up their forecasts for price gains in 2013. Separate data showed consumer confidence picked up in May to its highest in more than five years in the midst of a stock market rally and lower gasoline prices.
Housing and the consumer have shown strength even as there have been hints that tighter fiscal policy is starting to bite in the broader economy. Across-the-board US government spending cuts of $85 billion went into effect in March, while the payroll tax holiday expired at the beginning of the year, raising taxes for many Americans. The data suggested both areas were performing better than the overall economy, said Sam Bullard, senior economist at Wells Fargo in Charlotte, North Carolina.
"There are some individual circumstances that are helping to propel both of these a little bit stronger than what the actual underlying strength would suggest," said Bullard, pointing to the effect of higher stock prices on consumers, and investor demand for homes in beaten-down regions lifting prices. Economists expect the pace of growth likely cooled in the second quarter, partly due to tighter fiscal policy, but the second half of the year is seen regaining traction. Investor attention has turned to when the Federal Reserve might start to slow its economic stimulus efforts.
Housing-related shares gained following the Case-Shiller report, with the S&P homebuilders ETF up 1.1 percent. The ETF is up more than 20 percent for the year, outpacing the more than 16 percent surge seen in the benchmark S&P 500. Home prices in Phoenix continued their sharp ascent, rising 22.5 percent from a year earlier. Other standouts included San Francisco, up 22.2 percent, and hard-hit Las Vegas, up 20.6 percent.
For the first quarter of this year, the seasonally adjusted national index rose 3.9 percent, stronger than the 2.4 percent gain seen in the final quarter of last year. "Low inventories and gradually improving housing demand have combined to push housing starts higher and support home price appreciation," said Michael Gapen, an economist at Barclays in New York.
The Conference Board, an industry group, said its index of consumer attitudes jumped to 76.2 from an upwardly revised 69 in April, topping economists' expectations for 71. It was the best level since February 2008. In a sign of confidence among high-end consumers, jeweller Tiffany & Co reported better-than-expected sales for the first quarter. Consumer activity accounts for about two-thirds of the economy and while improved sentiment does not necessarily translate into more spending, the improvement was encouraging.
Still, even with the gain in confidence in May, second-quarter consumption growth is likely to have slowed to a 2.5 percent annualised pace from 3.2 percent in the first quarter, according to Capital Economics. The expectations index rose to 82.4 from 74.3, while the present situation index climbed to 66.7 from 61. Consumers' assessment of the labour market improved. The "jobs hard to get" index slipped to 36.1 percent from 36.9 percent the month before, while the "jobs plentiful" index gained to 10.8 percent from 9.7 percent.
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