KEY DATA: Sales: +2%; Prices (Over-Year): +6%/ Phil. Fed (NonMan.): -10.7 points; Orders: +6.9 points; Hiring: +5.8 points

IN A NUTSHELL: “The strongest housing market in nearly a decade is another clear sign this economy is in solid shape.”

WHAT IT MEANS: I know that in four years, America will be great again, but right now, it is not that bad. The National Association of Realtors reported that in October, existing home sales hit their highest pace since February 2007. The increases were spread fairly evenly across the nation, which points to a broad based expansion in the housing market. Condo sales were flat but single-family activity, which is about 90% of the market, was up decently. With demand rising, not surprisingly, prices were also up solidly. The price increases were similar for both single-family and condos. The supply of homes on the market is still relatively low and that points to further strong gains in prices.

The Philadelphia Federal Reserve reported that nonmanufacturing activity in its district continued to expand in November, but at a muted pace. This report was actually quite solid. New order growth accelerated sharply, as did sales, and firms were able to push through solid price increases for their own products. As a consequence, hiring of both full-time and part-time workers picked up quite nicely. In other words, the details were really good even if the headline wasn’t.

MARKETS AND FED POLICY IMPLICATIONS: The housing market has recovered and is nearing a more reasonable level of activity. Construction and sales are back to 2007 levels and we don’t need a whole lot more to get to levels that are consistent with long-term trends. Indeed, don’t look at 2005 as a standard: One bubble was one bubble too many. Can the market continue to improve now that interest rates are moving upward? Undoubtedly yes. First of all, rising rates tend to get the attention of fence sitters, who actually have to now start making decisions. The rising prices should allow those that didn’t have enough equity to start putting their homes up for sale, boosting inventory. And really, a 4% mortgage rate just isn’t very high. In 2005, at the peak of the housing boom, mortgage rates averaged nearly 6%. In the 1990s, when home sales were strong, mortgage rates hovered around 7.5% – and that is when 20% down payments were the standard! We have been spoiled and buyers will just have to get used to more normal levels of rates. Yes, some may not be able to get a mortgage, but prices will adjust, so I don’t expect a significant dislocation in the housing market even if rates rise another one percent. Of course, I am biased (or dumb), as my first mortgage was 17.5%. I did get a great price for the house, though. Barring something unexpected, the Fed is raising rates on December 14^th. With rising long-term rates telling the Fed that inflation is going to accelerate and with the possibility that expansionary fiscal policy, which once was a dirty phrase to the Republicans now becoming a mantra, the economy, inflation and interest rates are all slated to accelerate. And the Fed needs to get going before it is way behind the curve.