NAROFF ECONOMIC ADVISORS, Inc.
Joel L. Naroff
President and Chief Economist
INDICATOR: July Existing Home Sales
KEY DATA: Sales: Up 2.3%; 1-Family: Up 2.1%; Condos: Up 4.3%; Median Prices (Year-over-Year): Up 9.4%
IN A NUTSHELL: “With sales and prices rising it is clear that the housing recovery remains on track.”
WHAT IT MEANS: The housing recovery remains intact. The National Association of Realtors reported that housing sales rose in July. Granted, the gain was a little bit less than hoped for and we are still not back to the levels reached earlier in the spring, but up is still good. Modest increases were reported in the South and West but a sharper rise occurred in the Northeast. The problem appears to be in the West where demand was flat. Inventories of distressed homes there are limited and that may be slowing the market down. Indeed, there was a nearly 25% rise in prices in the West over the year and that may have been due more to the dearth of investor properties than a rise in prices. That would skew the purchases more toward non-distressed homes causing the price indices to rise. Of course, a surfeit of distressed homes artificially lowered prices so this may just be some pay back. In comparison, median prices rose between 3.5% and 6.6% in the other regions. Those gains, though, make it clear that home prices are now increasing not falling, a warning to fence-sitting home buyers. Mortgage applications for new purchases were up last week, though those data do bounce around a lot.
MARKETS AND FED POLICY IMPLICATIONS: Progress may be slow, but it is occurring nonetheless and the recovery in the housing market should help future growth. It isn’t just new construction where housing powers economic activity. Within about six to nine months after a gain in home sales retailers start to see rising demand for housing-related products. People buying new or existing units personalize them and that means buying everything from new furniture to window treatments to landscaping. The increasing existing home sales should start leading to more housing-related retail sales though I suspect the lag between the two may be a little longer in this cycle. The Fed is intent on keeping mortgage rates low and that is a help. But a small rise in mortgage rates, when coupled with the rising prices, could help even more as potential buyers are forced to make decisions before their monthly costs get away from them. This is a report that is not strong enough to change anyone’s mind about the state of the economy: It is growing but not rapidly. However, the housing sector has been a key factor in this growth lately and reports like this indicate that should continue.
Note from Christopher J. Brown, CEO:
I feel the market will continue to make great strides. There are five GOOD reasons I see the real estate market making a big comeback:
1) Stock market will suffer losses due to the European debt crisis/situation and China’s reduction in growth;
2) Municipal Bonds will become unattractive as local, county, state and federal governments fail to cut costs and raise taxes;
3) Residential Mortgage-Backed Securities are making a big comeback and offering 7% returns; this will fuel the lenders with new capital and offer better mortgage programs to bring in more buyers;
4) Investors will have nowhere to go but to buy inexpensive houses with low interest rate mortgages to provide a safeguard against tax increases;
5) Employment will increase as the market picks up, bringing in upward mobility and first-time homebuyers.
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