New home sales climb 16% in January

Economy shows resilience in face of looming federal cuts
A worker is shown at a new home under construction in Chicago in January.AP

WASHINGTON — Even with automatic spending cuts looming, the outlook for the U.S. economy brightened a bit Tuesday after reports showed that Americans are more confident and are buying more new homes.

Home prices also are rising steadily, and banks are lending more.

Such improvements suggest that the economy is resilient enough to withstand the deep government cuts that will kick in Friday.

That's especially encouraging because uncertainty over the federal budget could persist for months.

"The stars are lining up for stronger private-sector growth this year," said Craig Alexander, chief economist at TD Bank.

Sales of new homes jumped nearly 16 percent in January to their highest level in 41/2; years, adding momentum to the housing recovery. Consumer confidence rose in February after three months of declines. And home prices increased in December from the same month in 2011 by the largest amount in more than six years.

Consumers still face numerous burdens. Among them is a sharp increase in gas prices. The national average for a gallon, $3.78, has surged 44 cents in a month. But growth should accelerate later. Several reports Tuesday suggest that the economy's underlying health is improving despite the prospect of lower government spending and further budget stalemates:

  • The Standard & Poor's/Case-Shiller 20-city home price index rose 6.8 percent in December from a year earlier. That was the biggest year-over-year increase since July 2006. Rising home prices tend to make homeowners feel wealthier and encourage more spending. They also cause more people to buy before prices rise further. And banks are more likely to provide mortgages if they foresee higher home prices.
  • Consumer confidence rose after three months of declines, according to the Conference Board, a business research group. Confidence had plunged in January after higher taxes cut most Americans' take-home pay. The rebound, though, suggests that some consumers have begun to adjust to smaller paychecks. The consumer confidence index rose to 69.6 in February from 58.4 in January. That's higher than last year's average of 67.1.
  • Bank lending rose 1.7 percent in the October-December quarter, the Federal Deposit Insurance Corp. said. It was the sixth rise in seven quarters. Banks made more commercial and industrial loans to businesses, and auto loans to consumers.
  • Sales of new homes rose to a seasonally adjusted annual rate of 437,000, the Commerce Department said. That's the highest level since July 2008. "Builders are not putting up homes fast enough to meet underlying demand," said Patrick Newport, an economist at IHS Global Insight.

New homes have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to data from the National Association of Homebuilders.

Construction hiring has picked up in recent months. The industry has gained 98,000 jobs since September, its best stretch since the spring of 2006 — before the housing bubble burst.

AP-WF-02-26-13 2341GMT



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