KEY DATA: Sales: -7.1%; Year-over-Year: +2.2%; Prices (Year-over-Year): +4.4%
IN A NUTSHELL: “The volatility in the housing market continues, though the sharp decline in February is something to watch.”
WHAT IT MEANS: With the Fed on hold, or whatever, data move back into the spotlight and this week it is largely about housing. The first number up was the National Association of Realtors’ existing home sales report for February. It was ugly. Sales fell sharply and it wasn’t just due to some weather issues. Demand was off across the nation, though the Northeast and Midwest led the way with double-digit declines. One of the biggest problems holding back the market is supply. While the number of homes on the market rose a touch, inventory, as measured by the number of months of supply given the sales pace, was a meager 4.4 months. A more normal, vibrant market would have something close to six months of supply. Without the product to sell, it is hard to sell homes and that is a factor to consider when determining the meaning of this report. The lack of supply has driven up prices, but the year-over-year gains have also bounced around due to the unevenness in sales across price levels.
The Chicago Fed’s National Activity Index was also released today and it showed the economy slowed in February. This index also has been quite volatile, but has remained in a range that indicates the economy is growing, but not at any great pace.
MARKETS AND FED POLICY IMPLICATIONS: Housing has been trending upward and that is still the case, but the key word is “trending”. Some months are strong, some are weak and it is important not to jump to any conclusions based on just one report, especially given the issues with inventory. The consumer is spending money and we saw that with a recent report that said retail sector profits went up solidly during the fourth quarter. And that spending should spill over into housing. With job gains strong and the labor market tightening, wage gains are holding up and coupled with the continued low mortgage rates, there is every reason to think that housing sales will rise. But since you cannot buy what is not for sale, at least not usually, don’t expect sales to rise consistently. This report will probably be read as another sign of weakness, but that would be jumping to conclusions. On the other hand, and there is always another hand, this is not a report that makes anyone at the Fed worried about the cautious statement that was issued last week.