Every year at this time, we compile a list of things that are going right, in the spirit of Thanksgiving. Here at Kiplinger.com, we're most thankful for the bold forecasts and clear guidance of the Kiplinger reporters, columnists, and editors who contributed to this list. Here are 11 things we can all be thankful for this holiday. Happy Thanksgiving! We hope you enjoy them. Please offer your own suggestions in the comment box below.
1. An improving U.S. economy in 2013. We expect President Obama and Congress to reach a deal to avert the fiscal cliff. And then, in the second half of next year, we see considerably more pep in the U.S. economy. As the housing market picks up steam, it'll add wealth to the economy and nurture consumer spending. The Federal Reserve will keep mortgage rates near all-time lows, encouraging building and buying. Plus, as 2013 unfolds, there will be more eagerness among banks to make loans. By year-end, look for GDP growth chugging along at a much healthier 3% pace. For 2013 as a whole, we see another yearly gain in the 2% neighborhood. All told, about 2 million net new jobs…enough to lower the jobless rate to 7.5% and to keep consumer spending on an upward path, albeit a weak one.
2. Speaking of housing... Hallelujah. Housing is firmly on the upswing. Next year, it will add half a percentage point to GDP growth. Some signs that the tide has finally turned: a) Sales of new and existing homes are climbing: 20% for new homes this year; 18% next year. For existing homes, a 2% gain in 2013 will follow about an 8% jump in 2012. b) The pace of building is picking up as well, with housing starts in some states -- Washington, Iowa, Nebraska, Texas and South Carolina, for example -- likely to near levels last seen in 2000-2003 by the end of the year. Nationwide, starts will climb by 17% next year. c) The number of unsold homes is easing and the foreclosure tsunami, fading, with the share of mortgages delinquent by 90 or more days a third lower than in 2010.
Distressed sales are now a fourth of the total -- lower than last year, though still high. Mortgage rates are sure to remain near historical lows for a year or more, thanks to ongoing monthly buying of mortgage-backed bonds by the Federal Reserve.
There is more good news for the housing industry in changing U.S. demographics. "Echo" boomers, about 85 million of them, are reaching home-buying age. Born between 1982 and 1995, baby boomer offspring should help fuel demand for homes over the next decade. Though the Great Recession delayed some buying, most intend to start house hunting as they hit their 30s and the economy picks up. An offsetting wave of baby boomer home sales isn't likely for 20 years, with about half of the 76 million-strong generation still shy of 55 years of age now. The result: more demand for new and existing housing that has dropped in price since the Great Recession.
3. Cheap stocks. Since 1935, the average price-earnings ratio of Standard & Poor's 500-stock index (based on reported profits over the previous four quarters) has been 16.9. When the P/E is well above this average, stocks are at risk. Opportunities for investors are best when the ratio is considerably below this average. The great bull market of the 1990s pushed the S&P 500 to a record valuation of 34 times earnings, so it shouldn't be surprising that performance over the following decade was poor.
But the 2007–09 bear market pushed the market to an extreme undervaluation. And even though stocks have more than doubled since March 2009, they remain cheap based on historical averages. Earnings estimates have been cut and stock prices are high, but the S&P index is still selling at only 15.9 times trailing earnings and just 13.2 times projected earnings for 2013 (based on reported earnings through November 16). Moreover, when ten-year Treasury bond yields are less than 6.7%, the average of the past 50 years, the market's average P/E has been a much higher 23.6. So not only are stocks cheap on an absolute basis, they are also cheap relative to fixed-income investments.
4. More fresh cherries! Sweet cherry lovers, rejoice. U.S. harvests of the delicious summer fruit are running longer than ever, from late June all the way until Labor Day. Why? Growers in the Northwest are planning trees at higher elevations, where fruit matures more slowly, plus doing so with varieties that naturally produce later. That's a boon for farmers and pickers, who get more time to harvest: for grocers, who get extra time to sell the summer's biggest fruit crop; and for consumers who love fresh cherries.