Mixed Economic Signals: Better GDP & Housing vs. Worse Corporate Earnings

By now it’s clear that this will not be an easy economic recovery. For every two steps forward we take one step back, as this week’s mixed economic signals show.

On one hand, it was good to see improved GDP growth figures announced Friday. The U.S. economy grew at a better-than-expected 2 percent annual rate in the third quarter, the Commerce Department announced. That’s up from a 1.3 percent growth rate in the second quarter.

The improvement was driven in part by greater consumer spending, but also defense spending and the government sector. Many analysts cautioned that the economy is still facing significant headwinds and warned that GDP isn’t likely to climb much above this level through the coming year.

On the bright side, real estate continues to be one of the better performing sectors of the economy, as the recent Bay Area housing report from DataQuick reaffirmed. The La Jolla-based real estate research firm reported that Bay Area home prices last month rose to their highest level in more than four years and attributed it to a slowly improving economy, low mortgage interest rates and shifts in market mix.

The median sale price for all new and resale homes in the nine-county Bay Area rose to $429,000 in September, up 17.5 percent from a year ago. It was the highest since August 2008 when it was $447,000, according DataQuick.

Additionally, sales continue to climb steadily. A total of 6,850 new and resale homes were sold in the Bay Area last month, up 1.5 percent from 6,749 for September 2011. And the mix of homes is encouraging with a continued decline in the percentage of foreclosures and distressed sales and a steady increase in “regular” sales and transactions in the middle and upper ends of the market.

“It’s obvious that a lot of fence-sitters are getting active,” John Walsh, DataQuick president, said in a statement. “We’re probably past that most attractive of mathematical sweet spots, the one that combines low interest rates and low prices. In other words, price increases the past few months outweigh mortgage rate declines.”

What was particularly interesting to me is that higher-priced markets around the Bay saw the biggest uptick in sales. San Francisco led the way with a whopping 23.3 percent increase in sales volume, followed by Marin County with 12.1 percent, San Mateo with 7.9 percent, and Santa Clara with 2.6 percent.

Those sales volume gains were offset by declines in less expensive markets in our region, including an 11.4 percent drop in Solano, 5.5 percent decline in Sonoma, and 1.9 percent in Alameda. Contra Costa was up fractionally while Napa was 1.6 percent higher.

In the last year alone, we’ve seen inventory in San Francisco drop 62 percent from 2,003 units to just 758 units for sale; while the price has climbed 27 percent. Silicon Valley has seen the same trend with Santa Clara County inventory down 66 percent over the past year and the price up 31 percent.

Of course, in this choppy economic recovery we continue to expect setbacks. And Wall Street has given us those in recent weeks. The majority of companies reporting earnings this season are announcing they have fallen short of forecasts. The market has responded to the disappointing numbers with the Dow off about 4 percent from its peak level and hovering just about 13,000.

With the upcoming presidential election and the impending “fiscal cliff” staring us in the face, I suspect we’ll see more volatility in the financial markets and the economy in the weeks and months ahead. But all indications are pointing to a continued healthy, if not robust, housing market.