Strong U.S. Housing Data Offsets Sharp Fall in Factory Orders

Residential real estate continues to recover at a strong pace in the United States, but U.S. factories are beginning to see a fall in demand.

A new report by CoreLogic shows that home prices rose 5% on a year-over-year basis in December 2014, with only three states—Maryland, Vermont, and Connecticut—seeing price declines. At the same time, Colorado, Texas, and New York were seeing the highest price gains.

Residential real estate continues to recover at a strong pace in the United States, but U.S. factories are beginning to see a fall in demand.

A new report by CoreLogic shows that home prices rose 5% on a year-over-year basis in December 2014, with only three states—Maryland, Vermont, and Connecticut—seeing price declines. At the same time, Colorado, Texas, and New York were seeing the highest price gains.

While the gains are still strong, CoreLogic noted a moderation of price growth in its report, which it identifies as a positive sign of a more sustainable housing market, with less speculative construction and flipping.

In most states, price growth moderated on a year-over-year basis in 2014, with the hardest hit states during the global financial crisis seeing a sharp slowdown in price growth.

Sam Khater, Deputy Chief Economist at CoreLogic, noted that the slowdown in price growth began robustly in late 2014, after high price gains in many states. Nevada and California “experienced increases of more than 20% earlier in 2014,” while prices have risen at a slower 7% rate in California and 7.3% rate in Nevada by the end of 2014.

Most states are still seeing average home prices below the peak in 2006 and 2007, but New York, Texas, and Colorado saw their prices higher in December 2014 than at any other point in history. However, Colorado saw month-over-month prices flat in December, in a sign that price growth may have peaked in the state.

Factory Orders Slump

While U.S. consumers and homeowners are feeling confident, thanks to rising home prices, the industrial economy is sending mixed signals. New orders for goods produced in U.S. factories fell for five months in a row by December 2014, when the Commerce Department says new orders fell 3.4%. That is far worse than a 2.2% decline expected by many economists.

While new orders fell, inventories also fell 0.3%, a reversal of a year and a half of inventory increases as confidence in an improving economy bolstered supplies. Manufactured goods shipments also fell 1.1%, while unfilled orders fell for the first time in ten months, falling 0.8%.

With hydrofracking and energy production and refining increasing demand for manufactured goods, economists expected the fall in inventories and goods, although its severity was greater than anticipated. Whether the fall in orders will continue remains unclear after oil prices rallied 11% in two days at the beginning of this week.

A further climb in oil prices could help energy industry profitability, helping a rebound in manufactured goods. At the same time, some economists fear a rise in energy costs could also cause further economic stagnation in the U.S., where flat wages caused discretionary income to decline as energy and food prices rose throughout the early 2000s.