KEY DATA: Sales: -4.8%; Prices (Year-over-Year): +4.7%

IN A NUTSHELL: “Home sales are still solid, even if they did come off their 8½ year high.”

WHAT IT MEANS: The housing market is being watched closely as it has been a key driver of growth and we know that the Fed is locked into the domestic economy. Okay, I will stop being snarky about the Fed. No, I will not! Anyway, the National Association of Realtors reported that existing home sales dropped more than expected in August. After having reached in July a level not seen since February 2007, a slight come down was forecast, and we got it. Still, let’s not get carried away here. This was the third year in a row that sales fell in August. Is there a seasonal adjustment issue here? Probably not, but it is worth noting. If you chart the monthly difference in existing home sales, there do not appear to be any trends you can find on a monthly basis. Looking at the details, sales were down sharply in the South and West, they fell relatively modestly in the Midwest and were flat in the Northeast. On the costs side, prices rose moderately, but the gain over the year was the smallest in a year. The South and the West continue to post price increases of 6% or more, the Midwest was up 4% while there was a modest 2.4% rise in the Northeast. As for inventories, they rose from July’s level but were still down over the year. The supply of homes remains fairly low.

MARKETS AND FED POLICY IMPLICATIONS: The world is trying to figure out what the FOMC members were thinking when they met last week and decided not to raise rates. Some of the Fed members were out trying to provide some perspective. St. Louis Fed President Bullard, who didn’t vote, said he would have dissented as he is in favor of raising rates, while San Francisco Fed President Williams, who voted, said the decision was close. Chair Yellen speaks on Thursday at UMass Amherst on “Inflation Dynamics and Monetary Policy” and hopefully that will provide some perspective on what she is looking at. We will likely get a lot more comments over the next couple of weeks. But it is still unclear what the key factors are that will shift the close decision from no move to let’s get going, so we really need to wait and listen to the comments from more of the Fed membership. As for the markets, the housing report may be viewed as negative, but I think we can dismiss the decline as being a normal down after several ups. Also, third quarter sales are averaging 2.8% above the second quarter and that translates into a nearly 12% annualized quarterly increase. And that is happening despite the relative dearth of homes on the market. It is likely supply, not demand, that is creating the slowdown in sales, as buyers cannot find that “perfect” home. Fed member comments, economic issues around the world and trends in oil prices will likely overwhelm the economic numbers this week. Next week we get consumer spending on Monday and the September jobs report on Friday, at which point we can start thinking about the domestic economy again.