KEY DATA:  Sales: +0.6%; 1-Family: +0.2%; Multi: 4.1%; Prices (Over-Year): +11.5%: 1-Family: 12.3%

IN A NUTSHELL: “The housing market just keeps rolling along.”

WHAT IT MEANS:  It was a quiet Friday on the economic data with only existing home sales being released.  But housing has been leading the recovery, so it is important to monitor what happens with sales and construction.  The first of the key January housing numbers indicates that there has been no softening in the market.  The National Association of Realtors reported that existing home sales improved in January, led by a solid gain in condo and coop construction.  Single-family demand increased minimally.  The overall sales level is nearly 24% above what it was in January 2020, which was before the pandemic hit.  Looking across the country, the Midwest and South were up fairly modestly while the declines in the Northeast and West were also limited.  What is most impressive about the report was that the level of demand is holding up despite the lack of homes on the market.  At the current sales pace, the supply is less than two months, which is about one-third what it should be.  As a consequence, home price gains remain in the double-digits. 

IMPLICATIONS: The December stimulus bill is beginning to resupply funds to those households and businesses who have become dependent on government funds and thus we should see some very strong income numbers next week.  But housing is a different story.  Yes, interest rates matter, but the surge in sales and prices is more a consequence of changing locational preferences.  That demand is holding up one year into the pandemic and resulting panic buying is impressive and may point to the housing market having longer legs than many expected.  The sharp rise in housing permits seems to point to builders thinking the same thing.  If starts follow permits, as it usually does, the residential market should keep leading the way.  Next week we get the January income and spending numbers and if they are as strong as expected, we could be in for a very solid first quarter growth number.  And if the third stimulus bill is anywhere near what President Biden has proposed, then the rest of the year should be solid as well.  Basically, Keynes was right: massive government spending works, at least in the short run.  And while many on Wall Street complain about budget deficits, when facing the option of significantly less stimulus and a much slower economy or enormous spending and deficits but strong growth, guess which one they will take?  And the markets reflect that attitude.