Existing home sales, starts, permits remain hot.

Sales of existing single-family homes jumped in December to a seasonally adjusted annual rate of 5,860,000, third highest ever, the National Assn. of Realtors announced this afternoon. The figure was up 5% from November's upwardly revised number and a whopping 13% from the December 2001 pace. For all of 2002, sales reached a record of 5,563,000, 5% above the 2001 total. The median sales price rose by 7% from 2001 to 2002 for both the month and the year as a whole. The number of homes for sale at yearend represented a slim 4.2 months at current selling rates. All four regions experienced gains in sales and median price. The news follows last Tuesday's government report that housing starts in December hit a 16-year high of 1,835,000 at a seasonally adjusted annual rate, 5% above the November level and 16% higher than in December 2001. Both single-family and multi-unit housing rose nationally and in all four regions (except for a dip in single-family starts in the South). In addition, building permits, a reliable indicator of starts in the near future, rose to a 16-year high in December, up by 8% from November's revised rate and 10% from December 2001. Only the West recorded declines in either single- or multi-unit permits. All of these reports imply that most housing will remain hot for the next few months at least. But a recent story in the Wall Street Journal reports that Axiometrics, Inc. found apartment rents had slipped 1.1% in the fourth quarter after rising in the second and third quarters, while Reis Inc. estimated the vacancy rate for apartments has climbed to 6.1% nationally from a low of 3% two years ago. Reis also estimated that office vacancies rose to 16% in the fourth quarter from 15.7% in the third and 8% two years ago; the average office rent slipped by 1.1%. In a third report, Reis said "retail vacancies and rents remained firm during the fourth quarter as U.S. retailers added stores overall," the Journal reported. The market for power-plant construction remains weak. Last week USA Today reported that Southern Co. canceled plans for a $400 million plant in Tennessee, following a like move by the TVA. The Senate on Thursday passed a fiscal 2003 omnibus spending bill that keeps highway spending at a $31.8 billion level through September 30, the same as in fiscal 2002. The bill must be reconciled with a House bill that sets spending at $27.7 billion. Because the year is nearly one-third over, the House level would result in a steep cut in spending in the remaining eight months. Next Monday the Administration will release its budget for fiscal 2004. That document is expected to contain tight caps on all spending not related to defense or domestic security. However, the budget may recommend transferring to the Highway Trust Fund the remaining 2.5 cents per gallon of gasohol fuel tax receipts that current go to the general fund. This would boost highway receipts by roughly $700 million per year. The Treasury Department provided more details about the Administration's dividend tax proposals last Tuesday. The proposal would include some simplifications, such as repeal of the accumulated earnings and personal holding company taxes. But it also would limit net operating loss (NOL) carrybacks to one year, vs. two under current law and five for tax years ending in 2001 and 2002. The proposal would provide tax relief to shareholders of profitable construction companies and greater flexibility to construction firms that have been operated as S corporations in order to avoid corporate-level tax. But the limitation on NOL carrybacks would be a blow to companies with losses in 2003.