HOME BUYERS
Year-end chill
Simply mentioning the possibility that mortgage interest rates may move higher has provided fuel for keeping the market for housing afire. Through all of last year, warnings that rates couldn’t stay at the lowest levels in 40 years stirred home buyers into action.
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The next question is whether a harsh ending to the old year, in the form of blizzards on the East Coast, cooled consumers’ ardor for a new place to live.
Answers will be forthcoming in Wednesday’s report on December housing starts. Economist Sung Won Sohn is looking for it to show slippage to a rate of 1.98 million units, from 2.07 million a month earlier, which was the highest level since 1984.
“The housing industry is starting to decelerate from a very high plateau, although the activity level will remain historically very high,” said Sohn, of Wells Fargo & Co. in Minneapolis.
He said many factors are underpinning the boom in real estate, including the strong rebound on Wall Street.
Despite that, Sohn sees the housing market cooling later this year, as mortgage rates do, indeed, begin to rise.
LEADING INDICATORS
Point to growth
Fears that the economy may stall out, causing its recent sizzling rate of growth to evaporate, are heard often.
But don’t expect much pessimism Thursday, when the Conference Board issues December’s leading economic indicators.
Chicago economist Maria Forres expects a gain for the month of 0.3 percent, the same as November.
“Over the last six months, the leading indicators have pointed consistently higher, suggesting that the economy will grow strongly for all of 2004,” said Forres, of Griffin, Kubik, Stephens & Thompson, an investment firm.
She sees a combination of low interest rates and tax cuts providing plenty of stimulus in coming months.
Forres expects that the fourth quarter will show a 5.4 percent rate of expansion, not far below the 8.2 percent for the third quarter.
FEDERAL RESERVE
No need for change
Only nine days remain before policymakers of the Federal Reserve gather for their first session of 2004, and some analysts are calling for verbiage from the central bankers that would boost the dollar, which is in a funk against other currencies.
Chicago economist William Hummer, however, thinks Alan Greenspan and his fellow Fed members won’t say anything to suggest any change in interest rate policy.
“They keep signaling that nothing will occur,” said Hummer, of Wayne Hummer Investments. “The central bankers continue to rate the dangers from inflation and deflation as being equal, meaning there is nothing on the horizon to suggest a policy change.”
EQUITIES
Signs of a correction
After seeing returns of about 30 percent in 2003, with prospects that the bull will continue to high-step during an election year, investors in the stock market are expecting more gains.
But Flossmoor-based investment adviser Richard Evans says this may be a time for caution. For one thing, he notes there has been recent price resistance in the stocks of transportation companies, a sign that the market could take a pause.
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Evans says the market is due for a correction of perhaps 10 percent to 15 percent, following its recent outsized gains.
Meanwhile, stock, bond, commodity, futures and options markets, as well as government offices, will be closed Monday for the Martin Luther King Jr. holiday.