KEY DATA:  Sales: -1.3%; Over-Year: +9.6%; Median Prices (Over-Year): +6.8%

IN A NUTSHELL:  “The scarcity of existing homes on the market continues to limit sales.”

WHAT IT MEANS:   The meek have been leading way in the economy as housing has gone from okay to Tony the Tiger land: Grrrrrrrreat!  Existing home demand is generally following the pattern set by new homes and starts. Sales eased in January, which is not what I had expected.  I thought we would see a bit of a rise.  The drop was pretty much equal in both single-family and condos.  But remember, these are closings, compared to contract for new homes, so we may see a major pick up over the next couple of months.  Three of the four regions posted gains or were flat.  Only a sharp decline West kept the sales pace down.   Compared to January 2019, though, demand surged.  As for prices, they were still up pretty sharply over the year.  The key for both prices and sales is the inventory number.  It stands at 3.1 months.  That is, at the current selling pace, the number of homes listed would be depleted in a little over three months.  That is up slightly from the historic low set in December.  In other words, there are few homes to be bought so there are few sales to be made and with demand still decent, prices should be rising solidly.   

MARKETS AND FED POLICY IMPLICATIONS:  Existing home sales are a lagging indicator in that they represent purchase decisions made a month or more in the past.  That they are holding up pretty well is an indication that the sector is strong.  The level of home construction (housing starts) this quarter started off over 8% above the average in the fourth quarter and there is little reason to think that gain will tail off significantly.  So expect housing investment to be a key factor in growth this quarter.  But it would be nice if sales rose faster.  Home purchases translate into consumer demand for housing related goods, usually within about six month after the rise in demand.  We need something to offset the slowing in vehicle purchases if growth is to be sustained at 2% and fixing up a newly-purchased housing unit would be one source of that demand.  But homeowners seem to be entrenched and are unwilling to put their places up for sale, so don’t expect demand to rise sharply anytime soon.  Should investors worry about that?  Only if they care about economic fundamentals and I am not really sure where they stand on that.  Actually, I am not sure they really care that much.  But the Fed does and while no Fed member is out there saying there is irrational exuberance in the markets, they have to be wondering if the disconnect between economics, earnings and stock prices could create some real issues going forward.  Indeed, I think the recent spate of comments about how to manage in an environment of low interest rates is a warning that there is not much rate-cut ammunition left.  That, of course, is a problem created in part by last year’s rate reductions, which we know did nothing but hype the markets even more.  It should be an interesting spring and summer, when the full impacts of the coronavirus start showing up.