Eye on the Economy

Growing Optimism for HousingRings in the New Year

The new year has opened with a sense of growing optimism for housing.

Existing home sales climbed 5% in December while inventories dropped more than 9% to a 6.2 months-supply, down from 7.2 in November, which should help reduce downward pressure on home prices and increase confidence in the housing sector.

Single-family housing starts rose 4.4% in December to a seasonally-adjusted annual rate of 470,000, their fastest pace since the end of the home buyer tax credit program in 2010. This was consistent with recent improvements in builder confidence, as indicated by the NAHB/Wells Fargo Housing Market Index (HMI), which rose to 25 in January ― its highest level since the summer of 2007.

From an unsustainably high level in November, starts in buildings with five housing units or more fell 28% in December to a rate of 164,000 units, which was still 69% above the pace of a year earlier.
Although overall construction hiring slowed somewhat in December, 2011 is expected to be the first year since 2006 in which total hires exceeded total job losses in the construction sector.
Consumer prices and producer prices ― including building materials ― were both flat at the end of 2011, after increases earlier in the year.

The NAHB/First American Improving Market Index (IMI) has grown to 76 markets, many of which rely on health care and educational institutions for a solid economic base. As construction and other sectors continue to improve in 2012, the list of cities on the IMI is expected to grow.

And housing has been receiving attention from the Federal Reserve, which remains concerned over foreclosures, prices and tight credit conditions, even as improvements in multifamily building provides a boost to some areas.

Examining problems in the housing market ― including an excess supply of vacant homes, reduced availability of mortgage credit and an inefficient foreclosure process ― a Fed white paper concludes that restoring health to the housing market is necessary to promote a more robust economic recovery. While suggesting possible solutions, the paper indicates that there is no one policy that will accomplish this task.

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Liberty Global to buy Virgin Media for $23.3bn

US billionaire John Malone's cable group, Liberty Global, has agreed to buy the UK's Virgin Media in a cash and stock deal worth $23.3bn (£15bn).

It will create the UK's second biggest pay-TV business after BSkyB.

The deal, subject to shareholder and regulatory approval, puts Mr Malone in direct competition with Rupert Murdoch, whose media empire owns 39% of BSkyB.

Liberty Global already has operations in various European countries including Germany and Belgium.
"Adding Virgin Media to our large and growing European operations is a natural extension of the value creation strategy we've been successfully using for over seven years," said Mike Fries, chief executive of Liberty Global.

Alongside the announcement of the deal, Virgin Media reported its operating profit rose nearly 30% to £699.1m last year.

It said it added a record 88,700 new customers to its cable business during the year.
Shares jump
 
Neil Berkett, chief executive of Virgin Media, said: "The combined company will be able to grow faster and deliver enhanced returns by capitalising on the exciting opportunities that the digital revolution presents, both in the UK and across Europe."

Virgin Media was created from the merger of NTL and Telewest, and Sir Richard Branson's Virgin Mobile in 2006.

As part of that deal Sir Richard retained a 3% stake in the company, which has a 30-year brand licensing agreement with his Virgin Group.

Mr Malone, who is the chairman of Liberty Global, clashed with News Corp's Mr Murdoch in 2007 when the two companies vied for control of DirecTV Group, the largest US satellite TV broadcaster.

BSkyB leads the UK pay-TV market with 10.7 million customers compared with Virgin Media's 4.9 million.
Virgin Media's main listing is in the US on the Nasdaq technology stock exchange, where its shares jumped 17.9% on Tuesday amid speculation that a deal was imminent.