February Existing Home Sales

KEY DATA: Sales: +3.0%; Over-Year: +1.1%; Prices: +5.9%; Inventory (Over-Year): -8.1%

IN A NUTSHELL: “The housing market is decent but with the supply of homes for sale low, it is hard for buyers to find the home of their dreams.”

WHAT IT MEANS: So, is the housing market improving, weakening or stagnant. The answer seems to be yes. Purchases of previously owned houses rose in February, but the level remains somewhat disappointing. Over the year, sales were up minimally and were pretty much at the same pace we averaged during 2017. In other words, it is going largely nowhere. The big problem is the low level of homes on the market, which were down sharply since February. At the current sales pace, there were only 3.4 months of supply on the market, about two months less than what would be considered to be a decent level. There has been a dearth of homes available for sale for nearly four years. In February, a surprisingly sharp drop in purchases in the Northeast restrained the gain. We had one of the warmest February’s on record in some areas, so it would have been expected that contract signings increased. They didn’t. The Midwest was down modestly, while there were strong increases in the South and Midwest. The lack of supply is pushing prices upward and they rose solidly in February.

MARKETS AND FED POLICY IMPLICATIONS: I have been traveling the past week and will be hitting the road again tomorrow (if the Philadelphia airport is open!) for another week. Over the last few days, a slew of economic numbers were released that were really inconsistent. So much so that the Atlanta Fed’s GDP Now estimate dropped below 2%. It had been close to three percent last week. Basically, we saw some better data, such as industrial production, job openings, business and consumer sentiment, but softer numbers, such as retail sales and housing starts. Today’s reading on existing home sales falls in the middle. The housing market is okay but if buyers cannot find the home they want, they tend to continue looking. That seems to be the situation with a lot of things in the economy. Right now, first quarter growth is looking a little softer than most economists, including myself, expected going into the year. But the tax cuts have not yet kicked in, so there is hope a strong 2018 will ultimately emerge. It is this somewhat unclear economy that is overhanging the Fed’s decision making. And when you add to that the uncertainties over trade, it only complicates the FOMC’s potential actions even more. That said, the Fed has embarked on a rate normalization strategy and fed funds hikes and the reduction of its balance sheet (quantitative tightening) should continue unabated unless a major crisis occurs.