US home prices see best yearly gain since 2006
US home prices see best yearly gain since 2006
But data on consumer confidence yesterday was less encouraging, with moods falling to their lowest level in more than a year as Americans became more pessimistic about the economic outlook and their financial prospects in the wake of higher taxes for many.
The S&P/Case Shiller composite index of 20 metropolitan areas gained 0.6 percent in November on a seasonally adjusted basis, in line with economists' forecasts.
Prices in the 20 cities rose 5.5 percent year over year, making for the strongest yearly price increase since August 2006 when prices were on their way down.
The housing market became a bright spot for the economy last year as prices rose and inventory tightened. The sector is expected to contribute to economic growth in 2013.
"What we're seeing is really a gradual improvement in the overall economy," said Anthony Chan, chief economist for Chase Private Client in New York.
Rising home prices and recent gains in the stock market should blunt the impact of tax increases for consumers and spending should improve by the second half of the year, said Chan.
Homebuyers also have been enticed by historically low interest rates. The Federal Reserve's latest stimulus efforts are helping to keep rates low, as the central bank buys assets including mortgage-backed securities.
It was the 10th month in a row that prices have increased, the longest string of gains since before 2006. Last year's rise in prices beat a nine-month consecutive run in 2009 and 2010, when the market was boosted by a homebuyer tax credit.
A number of challenges remain for the housing market, including tight access to mortgages and on-going foreclosures.
Highlighting the hurdles on the path to recovery, separate government data showed the homeownership rate slipped to 65.4 percent in the fourth quarter from 65.5 percent.
Consumer attitudes dropped more than expected to 58.6 in January, data from The Conference Board showed. It was the lowest level since November 2011.
At the start of the year, US politicians came to an agreement that averted the so-called fiscal cliff of spending cuts and tax increases that had been set to come into effect.
But the deal did raise taxes for many Americans, while a payroll tax holiday came to an end. Lawmakers still face a number of budget decisions.
"Consumers are probably pretty unhappy to notice that their payroll taxes have gone up," said David Sloan, economist at 4Cast Ltd. in New York.
US stocks pared slight gains immediately after the report was released, but Wall Street was modestly higher by midday.
The Conference Board's consumer expectations index tumbled to its lowest level since October 2011 at 59.5, while the present situation measure slipped to 57.3.
Consumers' views on the labor market were also weaker, with the "jobs hard to get" index rising for the first time since September.
Economists said the pain should be short lived and that confidence was likely to perk back up as long as Washington can come to an agreement on the budget issues yet to be resolved.
"This might bounce back pretty quickly as people get used to a smaller paycheck. Right now, it's a sticker shock," said Craig Dismuke, chief economic strategist at Vining Sparks in Memphis, Tennessee.
Home prices on a non-adjusted basis slipped 0.1 percent. The non-adjusted numbers showed prices fell in about half of the cities covered by the survey, with the winter months typically a weak period for housing, the survey said.
Phoenix, which saw its housing market rebound sharply last year, led with the biggest yearly gain at 22.8 percent. New York was the only city to fall, down 1.2 percent from the previous year.
Gulf companies challenged by debt and rising interest rates
- Debt restructurings on the rise, but below crisis levels
- Central Bank of the UAE has raised interest rates four times since last March
There has been an uptick in recent months in heavily-borrowed companies in the Gulf seeking to restructure their debts with lenders. Although the pressure on companies is not comparable to levels witnessed in the region following the 2008 global financial crisis, rising interest rates will eventually begin to have a greater impact, say experts.
Speaking exclusively to Arab news, Matthew Wilde, a partner at consultancy PwC in Dubai, said: “We do expect that interest rate increases will gradually start to impact companies over the next 12 months, but to date the impact of hedging and the runoff of older fixed rate deals has meant the impact is fairly muted so far.”
The Central Bank of the UAE has raised interest rates four times since the start of last year, in line with action taken by the US Federal Reserve. The Fed has signalled that it will raise interest rates at least twice more before the end of the year.
Wilde added that there had been a little more pressure on company balance sheets of late, although “this shouldn’t be overplayed”.
Nevertheless, just last week, Stanford Marine Group — majority owned by a fund managed by private equity firm Abraaj Group — was reported by the New York Times to be in talks with banks to restructure a $325 million Islamic loan. The newspaper cited a Reuters report that relied on “banking sources”.
The Dubai-based oil and gas services firm, which has struggled as a result of the downturn in the hydrocarbons market since 2014, has reportedly asked banks to consider extending the maturity of its debt and restructuring repayments, after it breached certain loan covenants.
A fund managed by Abraaj owns 51 percent of Stanford Marine, with the remaining stake held by Abu Dhabi-based investment firm Waha Capital. Abraaj declined to comment.
Dubai-based theme parks operator DXB Entertainments struck a deal last month with creditors to restructure 4.2 billion dirhams ($1.1 billion) of borrowings, with visitor numbers to attractions such as Legoland Dubai and Bollywood Parks Dubai struggling to meet visitor targets.
Earlier this month, Reuters reported that Sharjah-based Gulf General Investment Company was in talks with banks to restructure loan and credit facilities after defaulting on a payment linked to 2.1 billion dirhams of debt at the end of last year.
Dubai International Capital, according to a Bloomberg report from December, has restructured its debt for the second time, reaching an agreement with banks to roll over a loan of about $1 billion. At the height of the emirate’s boom years, DIC amassed assets worth about $13 billion, including the owner of London’s Madame Tussauds waxworks museum, as well as stakes in Sony and Daimler. The firm was later forced to sell most of these assets and reschedule $2.5 billion of debt after the global financial crisis.
Wilde told Arab News: “We have seen an increasing number of listed companies restructuring or planning to restructure their capital recently — including using tools such as capital reductions and raising capital by using quasi equity instruments such as perpetual bonds.”
This has happened across the region and PwC expected this to accelerate a little as companies “respond to legislative pressures and become more familiar with the options available to fix their problems,” said Wilde.
He added that the trend was being driven by oil prices remaining below historical highs, soft economic conditions, and continued caution in the UAE’s banking sector.
On the debt restructuring side, Wilde said there had been a “reasonably steady flow of cases of debts being restructured”.
However, the volume of firms seeking to renegotiate debt remains small compared to the level of restructurings witnessed in the aftermath of Dubai’s debt crisis.
Several big name firms in the emirate were caught out by the onset of the global financial crisis, which saw the emirate’s booming economy and real estate market go into reverse.
State-owned conglomerate Dubai World, whose companies included real-estate firm Nakheel and ports operator DP World, stunned global markets in November 2009 when it asked creditors for a six-month standstill on its obligations. Dubai World restructured around $25 billion of debt in 2011, followed by a $15 billion restructuring deal in 2015.
“We would not expect it to become (comparable to 2008-9) so barring some form of sharp external impetus such as global political instability or a protectionist trade war,” said Wilde.
Nor did he see the introduction of VAT as particularly driving this trend, but rather as just one more factor impacting some already strained sectors (e.g. some sub sectors of retail) “which were already pressured by other macro factors.”