KEY DATA: Sales: +2.4%; 1-Family: +2%; Condos: +5.2%; Median Prices (Year-over-Year): +5.6%
IN A NUTSHELL: The housing market continues to improve though without much exuberance.”
WHAT IT MEANS: Housing is one of the more enigmatic parts of the economy. It led the way as construction, sales and prices soared, but then the sector seemed to stall. The brutal winter didn’t help and the abandonment by investors just added insult to injury. Well, the upturn continues, but not robustly. New home sales increased nicely in September despite a sharp drop in demand in the Midwest. It is not clear why that one region didn’t follow form, but these numbers do bounce around a lot. Condos were the hot item but interest in single-family dwellings was also up. Investor demand seems to have stabilized, which is a good sign for the market. The level of sales was the strongest since last September. While it did not match the pace reached during the June through September 2013 period, it is up nearly 13% from the winter bottom. As for prices, they were up solidly, but the days of large price increases are behind us. The supply of homes, as measured by the number of months it would take to clear the market at the going sales pace, eased in September but is still up from the year before. Regardless, supply and demand seem to be reasonably well balanced.
MARKETS AND FED POLICY IMPLICATIONS: It looks like housing added solidly to growth in the third quarter, but we will not know until we get the GDP report on October 30th. It has been a long process but the market is closing in on a sustainable sales pace. Prices continue to rise, but the heat is largely gone. That should not be a shock as costs are within ten percent of the highs posted in 2005 and 2006. Basically, the existing portion of the residential housing market is largely healed. Now if we can only get the new home segment to get going, everything would be back to normal. It will be quite a while, though, before builders are selling their product at a more reasonable pace. With fears easing, investors may start looking at economic fundamentals once again and since this report was better than expected, it should help keep the rebound going. But it is not so strong that the Fed will actually start thinking the economy is in good shape. Of course, there are some members who will not say it is strong until it has been strong for “an extended period”, but that is the way some central bankers think. Regardless, I will take this report and move on as it supports the view that the economy continues on its upward path despite the craziness going on in the U.S. and around the world.