Wednesday, December 26, 2012
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The market's focus in this holiday-shortened week will remain on
the unresolved 'Fiscal Cliff' situation, but we do have some
housing-related data on tap this week, starting with the October
Case-Shiller home price index a little later today and New Home
sales data on Thursday. Housing has lately been and will likely
remain the solitary bright spot for the economy. But with 'Cliff'
issue dragging on literally to the last minute, we shouldn't be
surprised if the market ignores fresh housing data altogether the
remainder of this week.
We already know that home prices have started moving up and
today's Case-Shiller reading for October will provide further
confirmation of this trend. The strong gains in the stock prices
of homebuilders like
) this year tell the story. Improved affordability and leaner
inventories are behind the favorable housing momentum and the
trend should strengthen further in the New Year, unless
Washington forces the economy to fall off the 'Cliff.'
On its own, the U.S. economy should keep chugging along, though
GDP growth in the current quarter and the one after it is
expected to be materially lower than the +3.1% pace we had in the
third quarter. Housing has become a positive contributor to
economic growth, but it likely gets offset by the emerging
weakness in the manufacturing sector and the pullback in
corporate spending. That said, momentum on the housing side has
beneficial knock-on effects throughout the economy, which should
provide more stability and staying power to the economic
The favorable housing narrative aside, the economy's likely
trajectory in 2013 will depend a lot on how the 'Fiscal Cliff'
issue gets resolved in the coming days. The so-called 'grand
bargain' is clearly off the table now, but it's unclear if we can
get even a much more modest 'fix' in place through the handful of
remaining days. But if a resolution is in the cards, it may not
come before New Year's.
Director of Research