KEY DATA: Sales: down 1.8%; Prices (Year-over-Year): up 4.5%

IN A NUTSHELL:   “The rotation from investor to homeowner continues and that is keeping a lid on housing sales and prices.”

WHAT IT MEANS:  When no one else would buy a house, investors saw an opportunity and they came in by waves.  That started the housing rebound and led to solid increases in prices.  Now that costs are rising back toward levels that might have existed if we didn’t have the surge and bust, investor opportunities are shrinking and so is their share of the market.  The result: Existing home sales seem to have hit a plateau.  They fell in August and are down fairly sharply from the August 2013 pace.  But the weakness was hardly spread across the nation.  The West and South saw declines but there were almost equal increases in the Northeast and Midwest.  Over the year, sales in the West are down almost 10%, an indication that investors are pulling back sharply as this area was a prime spot for activity in the past.  As for prices, they are still up over the year and it looks like the deceleration has stopped. The number of homes for sale, while down in August, has been on a modest upward trend.  Still, it is not that much higher than existed during the early 2000s, before the irrational exuberance really hit.  Indeed, price increases and inventories seem to be reasonably well in line with historical patterns.

MARKETS AND FED POLICY IMPLICATIONS: The housing market is in transition from investor-driven to owner-occupied.  As is usually the case with transitions, you get some dislocations and that is happening.  But the sales pace has flattened over the past few months, not fallen, and that is good news.  First time buyers are still in the game and rates remain at very low levels, so the outlook is good for the market.  Just don’t expect any surge in sales, which also is something positive.  We hardly want another bubble.  Housing should be a positive for the economy this quarter but maybe not a huge one.  Of course, with Janet Yellen hung up over “extended period”, this type of report can only add to her obsession.  Why do anything to cause rates to rise when housing is not surging, especially since it is the key interest sensitive sector in the economy?   And with Charles Plosser retiring this spring, a major hawk will be leaving the group of bank presidents.  It will be interesting to see who replaces him.