Home prices in the United States increased more than forecast in October. This is a sign that the real estate market is rebounding to help improve the nation’s economy for the first time in seven years. The S&P/Case-Shiller index of property values in 20 cities increased 4.3 percent compared to October 2011. This was the biggest 12 month advance since May 2010. The average forecast of 30 economists in Bloomberg poll saw a 4 percent increase.
Property values went up due to the record low mortgage rates, growing population and improved economy demand for housing. The improvement in the real estate has led to increasing household confidence and wealth. This is one of the reasons why consumer spending is improving even with the looming fiscal cliff.
Stocks dropped as the Stand & Poor’s 500 index fell for the third day in a row. Economists said this was due to the slump experienced by retailers during this year’s holiday season. President Barack Obama and Congress are also preparing to resume their budget talks.
The S&P 500 fell 0.5 percent to 1,419.83 at the close of trading in New York. The S&P Supercomposite Retailing Index dropped 1.8 percent while lumber futures surged to its highest level since 2005 due to the improvement in the housing sector.
The sustained improvement in housing is a source of strength as the United States’ economy tries to overcome the so-called fiscal cliff. If Congress fails to act soon, more than $600 billion in tax and federal government spending cuts would take effect next year. This would slow down the economy’s expansion.
Holiday sales increased at a slow pace this year after a gridlock in Washington decreased consumers’ sentiments. Hurricane Sandy was also blamed for disrupting shopping. Retail sales increase 0.7 percent from October 28 to December 24 according to the research firm MasterCard Advisors Purchase.
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