KEY DATA: Sales: +3.2%; Prices: +6.5%

IN A NUTSHELL: “Dear Janet: The housing and labor markets are in great shape, so what are you waiting for? Your friend. –Joel”

WHAT IT MEANS: Well, so much for issues with the housing market. Yes, conditions weakened early this year but are there any doubts left that the problems were weather related? I don’t think so. Housing starts and permits jumped in June and existing home sales did the same. The National Association of Realtors reported that home sales hit its highest annualized rate since early 2007. All parts of the country took part in the party. Since June, demand is up by nearly 10%, with every region posting an increase of 7% or more over the year.   While sales are rising, inventories are barely budging and that mismatch is having the expected impact: Prices are soaring. Indeed, the median cost of an existing home hit its highest level on record. And with mortgage applications up solidly over the year, it looks like the housing market surge will be sustained.

MARKETS AND FED POLICY IMPLICATIONS: The FOMC meets next Tuesday and Wednesday and while there is almost no chance (I never say never when it comes to the Fed) that a rate hike will be announced, that doesn’t mean some serious signals that the Fed will finally pull the trigger will not be sent. We do get two more jobs reports and the second quarter GDP numbers before the September 16-17 meeting, so there is still some uncertainty about a move, but the odds of an increase continue to rise. If we see payroll increases in the 225,000 to 250,000 range in July and August, even just one downtick in the unemployment rate and any acceleration in wages, it will be hard for the Fed to say they need to see more good news. What would they be waiting for? Not a recovery in housing. That is here and indeed the issue is rising prices, not weak demand. Consumer spending? If wages keep rising, can retail spending be far behind? We may not have robust growth, but it is clearly solid enough to absorb a rise in short-term rates from 0% to 0.25%. I mean, seriously people, would that really crash the economy? A rate hike in September looks more and more likely.