Investors were impressed with the report on pending home sales for December from the National Association of Realtors (NAR). Stock prices rose about one per cent after the inspiring news. Investors and Americans have watched housing closely for a bottom, thinking this sector offers a potential clue of broader economic prospects.

December pending home sales, sales of home previously owned, climbed 6.3 per cent from the revised number posted in November. This is welcomed news for an industry that has seen prices beaten down for several months, and sales sluggish in all parts of the country.

Analysts credit the strong December performance to buyers finally looking for deals thanks to steep price discounts and rock bottom mortgage rates. Sales in the Midwest and southern regions were especially strong, picking up slack for other markets still hurting.

Many economists are quick to caution Americans not to get too upbeat over the news. Though positive direction in the floundering sector is certainly welcome, the NAR suggests that up there still might be some months of volatility before things turnaround. Investors were also warned to be cautious, despite the strong market reaction to the positive report.

The news was not so upbeat for the depressed US auto industry. US car and truck sales fell by 37 per cent during January, bringing the industry to its lowest point in 26 years. General Motors sales were down by 49 per cent. Ford, the “rock” of the US sector was down 40 per cent for the month. It is not just US manufacturers that are hurting. Nissan and Toyota lost dropped about 30 per cent.

The auto manufacturers have been floundering for a long time and despite President Bush’s last minute assistance for the industry, more support might be needed to help keep GM and Chrysler afloat. Ford continues to maintain that it can survive a while longer and has yet to access its allocated bailout funds.

Industry sales have now dropped for 15 consecutive months. There were 656,976 vehicles sold in January. This is well below the over one million cars and trucks sold during January 2008.

Executives at the US companies maintain that there is still hope for a potential market recovery by late 2009. The leadership of the manufacturers anticipated a sluggish start to 2009 due to the slumping economy and the poor sales that were prevalent throughout 2008 and at the close of the year.

Well aware of the challenges faced by the auto industry, investors seemed more impressed with the positive results in housing. Home prices have reached prices that are at a point as low as they were in the early 21st century. Pending home sales have been the loan promising sign for the last few months in the sector. New sales and the drops in prices have continued to lag sales of pre-owned homes. Housing appears more poised for a sooner than later rebound than autos at this point.

Market Recap

The Dow gave up 64 points on Monday in a modest start to the trading week. Mixed earnings reports helped contribute to the limited movement. Pending home sales pushed the Dow to a 141 point gain on Tuesday. Investors were inspired with a 6.3 per cent boost in December’s pending sales from a November revised report. US auto sales fell 37 per cent to their lowest mark in 26 years. The dollar dropped Tuesday against the Euro and the British Pound.

Neil Kokemuller
9:46 PM EST
Tuesday, February 3, 2009

Neil Kokemuller is an Associate Professor of Marketing at Des Moines Area Community College in Des Moines, Iowa, USA. He has a MBA from Iowa State University.

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