In the past few days, the markets have reveled in some early holiday cheer, specifically what retail trade groups described as record-setting retail sales for Black Friday and Cyber Monday, along with reports of higher consumer confidence from The Conference Board.
Yesterday, the National Association of Realtors reported that pending home sales rose sharply in October, surging 10.4% from September and 9.2% from a year earlier. Lawrence Yun, NAR's chief economist, explained in a press release that home sales lately have been "plodding along at a sub-par level" while interest rates are at or near record lows and list prices are at affordable levels.
Yun describes the spike in the pending sales index a possible sign of pent-up demand. Woo hoo!
But do these things really signal an economic turnaround or something different -- let's say a psychological reaction by consumers to set aside for at least a month or so the past four years of hard times. You know, like a holiday truce on depression.
What else could explain this spending phenomenon in light of continued instability in the eurozone, the gridlock in Washington, the troubled housing market, the continued high rate of joblessness, the collapse of the New York Giants, and the failed marriage of Kim Kardashian? It's almost like the consumer is saying, "Damn it, I am going to have an enjoyable holiday no matter what. Turn off the TV, give me my car keys, we're going out shopping!"
Maybe, just maybe, the consumer is slightly less unhinged than I just described but has simply come to the realization that things may not be the same as they were back in 2007 for a very long time.
In the past few days, I have spoken to a number of economists, including Robert T. O'Brien, vice chairman and partner, US real estate services leader, for Deloitte & Touche, and Robert Bach, senior vice president and chief economist for Grubb & Ellis. While they all agree the economy and the real estate markets will improve in 2012, they caution that it will be a very slow recovery that will only marginally improve the 9% unemployment rate.
There are very few drivers for growth at the moment, and the uncertainty that pervades the markets is causing some investors to sit on the sidelines. With the potential for recession in Europe a distinct possibility, the economists I interviewed find it difficult to cite any hard evidence for anything more than sluggish growth in the US next year and only slight improvements in the office, retail, and industrial real estate sectors. The one bright spot: Multifamily (rental apartments), which will continue to outperform and will attract investment capital.
In closing, at a recent real estate conference in Tarrytown, N.Y., Nancy Kennedy, president of the Westchester Putnam Association of Realtors, acknowledged the tough market and candidly told the membership that it will likely take two to three years before the housing market rebounds.
"Everyone asks, 'When are we going to return to a normal market?' Well, what we all need to realize is and prepare ourselves for is that this is a normal market," she said. No one really likes the "new normal," though.
While I'm not trying to throw cold water on the party atmosphere, I'm trying to provide a little reality. We can't just pretend our way out of this mess... I could go on, but I have to wrap this blog up now. My wife is calling -- says she found a great buy on some holiday clothing for my two Pomeranians.