OVERVIEW ~ October 18 through October 22 ~ Two primary forces acted on the Dow Jones Industrial Average in the week ending October 22. First, reports of corporate earnings surprised investors to the upside. Predictably, the generally good news buoyed the DJIA, which rose to 11132.56 over the course of the week. That rise wasn’t a straight line, however. Also acting on the markets were the changing perceptions of China’s decision to raise key interest rates by 0.25%. At first, investors worried that China’s economy would slow as a result, weakening one of the world’s biggest markets for foreign goods and raw materials. On second thought, however, investors realized that the rate hike was a sober response to rising inflation, and that it signaled the strength, not the weakness, of the Chinese economy. Investors inside and outside of our nation then turned to higher-risk investments, pushing stocks higher, but also pushing the yields on Treasury securities higher (as Treasury values declined slightly), and the value of gold lower. In the process, the Freddie Mac average 30-year fixed rate for the week rose two basis points, from the prior week’s 4.19% to 4.21%.
FOCUS ~ NAHB Market Index and Housing Starts. While the noise in the markets was caused this week primarily by changing views of China’s slightly higher interest rates, the real estate market offered further, and perhaps more enduring, indications of improvement. This data, though, shows not only that the real estate market is improving, but also that the pace is still slow.
Homebuilder confidence, as measured by the National Association of Home Builders’ Market Index (compiled from phone interviews with builders) demonstrated a fairly significant rise in optimism about the future of the market. The Index is still a point below its October 2009 level, and though this is a weak reading from a historical viewpoint, it is also a large enough improvement from recent readings to convince experts that the effects of the termination of the homebuyer tax credits are behind us.
Is this view supported by the most recent figures for housing starts? Perhaps. Starts grew by 0.3% from August to September. Further, new home construction grew by 4.1% from September 2009 to September 2010. This latter improvement was widespread, but excluded the West and Midwest. And completions of new properties increased by 7.3%.
But there is some potentially contradictory data. Building permits in September fell 5.6%. Builders, it seems, aren’t yet ready to commit to better conditions in the more distant future. Still, they are preparing for recovery, very slow but real, with their current new construction.