Pending home sales rose 2.5% in December, defying expectations of a drop as mortgage rates eased somewhat, the National Association of Realtors said on Friday.

In another positive reading for the economy, the University of Michigan’s monthly consumer survey rose 9% in January, the final report issued Friday showed. The monthly index is still down 3% from a year ago.

“This recent low point in home sales activity is likely over,” said NAR Chief Economist Lawrence Yun. “Mortgage rates are the dominant factor driving home sales, and recent declines in rates are clearly helping to stabilize the market.”

The Northeast and Midwest saw a drop in sales, while the South and West recorded increases. However, overall sales are still off by a third from last year. Analysts had forecast a 1% drop in sales.

“Lower rates and a still strong labor market have helped to stabilize the housing market,” said Odeta Kushi, deputy chief economist at title insurer First American. The market suffered a deep freeze in the winter months of 2022 but if these dynamics persist, there is reason to believe that it will begin to thaw as the spring buying season approaches.”

Political Cartoons on the Economy

The economy may well be at an inflection point where slowing inflation and wage increases are encouraging some consumers while the threat of a recession later this year is causing others to go into hibernation. Consumer spending fell in December for the second month in a row, but inflation also dropped and incomes have been rising.

“American consumers are growing more cautious as #spending dropped in Dec for the 2nd month in a row on a host of reasons: inflation, slow income growth, lower stock of excess savings, early shopping in Oct, and, last but not least, the anticipation of a recession,” Tuan Nguyen, economist at RSM US LLP, tweeted Friday morning.

Gross domestic product rose at an annual rate of 2.9% in the fourth quarter, the government reported on Thursday. That was better than expected but still a downshift from the 3.2% rate of the third quarter. However, many economists are looking for growth to stall or turn negative in the first quarter, with a recession predicted sometime later this year.

However, American Express CEO told Yahoo Finance on Friday morning after his company posted earnings, “We aren’t seeing recessionary signals.”

And while consumer sentiment is generally gloomy, it has improved of late as prices begin to recede from the peak levels seen last summer.

“While the short-run economic outlook was relatively unchanged from last month, all other components of the index increased in January,” Michigan surveys director Joanne Hsu said. “The current conditions index soared 15% above December, with improving assessments of both personal finances and buying conditions for durables, supported by strong incomes and easing price pressures.”

Importantly, consumers seem to believe the Federal Reserve’s campaign of raising interest rates to reduce inflation is working.

“Year-ahead inflation expectations receded for the fourth straight month, falling to 3.9% in January from 4.4% in December,” Hsu said. “The current reading is the lowest since April 2021 but remains well above the 2.3-3.0% range seen in the two years prior to the pandemic. Long-run inflation expectations remained at 2.9%, yet again staying within the narrow 2.9-3.1% range for 17 of the last 18 months and remaining elevated relative to the 2.2-2.6% range seen in the two years pre-pandemic.”

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