KEY DATA: Sales: +3.1%; Over-Year: +29.8%; Prices: +1.9%

IN A NUTSHELL: “Housing sales are rising decently despite the lack of homes for sale.”

WHAT IT MEANS: Housing is a critical component of the economy and the new home sector is the most important part of this key segment. It looks like conditions are steadily improving as new home sales rose moderately in September. Of course, there was a huge downward revision to the August numbers, so the increase did come from a smaller base. The gain was driven by a sharp rebound in Northeast sales and a solid rise in the Midwest. Sales were up more moderately in the South but in the West they fell. For the first nine months of this year, demand has creased by 13% compared to the same period in 2015. I think that pretty much tells the story. As for prices, they were up modestly over the year, which is a puzzle. The supply of homes is nearing the lowest levels we have seen in the last forty years, which should be causing prices to rise faster. The percentage change over the year has bounced around lately, so this may just be a data volatility issue. With homes under construction not rising, it is doubtful that the supply/demand mismatch will be eliminated anytime soon. Those looking to buy a new home will either have to settle or wait for new product to be built.  

MARKETS AND FED POLICY IMPLICATIONS: The housing market may not be booming but it is clearly moving forward at a steady pace. New home sales in the third quarter were up solidly from the second quarter. While total housing starts were off slightly in the third quarter, single-family construction was up a bit. That implies housing may be a wash in the GDP report. Since residential investment reduced growth by 0.30 percentage point, that is good news for growth. But the big problem is still the lack of inventory. Builders are cautious and tend to do very little speculative construction. The number of homes under construction or completed that are for sale is rising but is way below what had typically been the case over the previous forty years. Part of that may be finance issues, but a lot is the unwillingness of developers to take a lot of risk. As a consequence, buyers don’t have a lot to choose from. This report is not going to affect the thinking at the Fed or in the investor world. It really isn’t a change from the pattern. And with the election less than two weeks from now, it makes a lot of sense for everyone, be they monetary policymakers or investors, to sit back and watch.