KEY DATA: Sales: +0.2%; Year-over-Year: +17.0%; Prices (Year-over-Year): -4.0%
IN A NUTSHELL: While the existing home segment is starting to run, the new home portion continues to take only baby steps.”
WHAT IT MEANS: The housing market is moving forward, but the gains are hardly great and there are some weak segments. The existing home part is in pretty decent shape as sales continue to rise and are nearing what we could call decent levels. But the new home recovery is still in its infancy. Yes, sales did rise to their highest level in over six years, but the rate is still way less than what would be considered healthy. Also, the August number was revised downward sharply, which was the real reason September posted a gain. Looking across the nation, demand jumped in the Midwest, rose moderately in the South, was flat in the Northeast and cratered in the West. As for prices, they look to be on the way down. There was a decline as builders may be downsizing to better match the market. The number of homes on the market went up but given the sales pace, there is no major inventory overhang.
MARKETS AND FED POLICY IMPLICATIONS: Housing is the most enigmatic sector in the economy. It is up, then down and then up, but only in parts and only in fits and starts (pardon the pun). While it is nice that the existing home segment is basically back, we really need more the new home portion to be hale and hearty if overall economic growth is to be strong. That is hardly the case right now. Sales are under one-half million units annualized and that needs to at least double. That could take a while, which is probably a major understatement. Thus, housing starts, at least for single-family dwellings, is likely to remain less than we would like to see for, to coin a phrase, “a considerable time”. This is not a report that should move almost anyone. I have no idea what motivates investors right now but Fed members will not see this report as saying the housing market is so strong that rates should be hiked. The FOMC meets Tuesday and Wednesday and we get third quarter GDP the day after, so things should heat up. But for now, there is no reason to believe that QE will not be ended or the Fed will remove “considerable time” from its statement. The December meeting could be different.