KEY DATA: Sales: -0.7%; 1-Family: -0.2%; Condos: -4.8%; Prices: +4.5%; 1-Family: 4.6%; Condos: 3.2%

IN A NUTSHELL: “The slowdown in the housing market continues.”

WHAT IT MEANS: The housing market has hit a rough spot. Existing home sales fell in July, the fourth consecutive month that demand was off. The level of home purchases was the lowest in over two years. Condo sales, which had been holding up, joined single-family units in the downward trend. Looking across the country, sales rose nicely in the West but were off sharply in the Northeast and declined modestly in the South and Midwest. As for prices, the rise is also trending downward. Condo price gains are modest, but the single-family price increase was not a whole lot faster. The deceleration in prices is occurring as inventory is finally expanding, even if it edged down a touch in July. Unfortunately, supply is still quite low on an historical basis.

MARKETS AND FED POLICY IMPLICATIONS: Rising prices and increasing mortgage rates, coupled with limited supply, are reducing affordability and slowing home sales. It is hard to believe those limiting factors will change anytime soon. Tomorrow we get new home sales and they were weak in June. Another decline would add to the belief that the housing sector may restrain growth not only in the third quarter but going forward. The markets are setting records as business fundamentals are strong, but investors need to start looking outward. Right now, job gains are solid but income increases are limited and that does not bode well for sustained strong consumer spending growth. There is uncertainty about the impacts of tariffs and how long they will last. Businesses continue to spend most of their tax gains on stock buybacks, dividends and mergers and acquisitions, rather than buildings, machinery, equipment or software. That raises questions about improved productivity. So, the beat goes on in the markets and while the economic fundamentals are solid, it would be nice if we start seeing better wage growth and more money piling into capital spending. The Fed, meanwhile, has to deal with the economic strength and the political pressures coming from presidential tweets. In order to maintain credibility, additional rate hikes and balance sheet reductions are likely.