December Existing Home Sales

NAROFF ECONOMIC ADVISORS, Inc.

Joel L. Naroff
President and Chief Economist

INDICATOR: December Existing Home Sales

KEY DATA: Sales: down 1.0%; Sales (’12 vs. ’11): up 9.2%; Prices (‘12 vs. ’11): up 6.3%

IN A NUTSHELL: “The housing market turned the corner in 2012 and the small pull back in sales in December does not detract from that fact.”

WHAT IT MEANS: Housing is back from the dead and it is not a Zombie. The National Association of Realtors reported that demand for existing homes eased a touch in December but that is not a major issue. There was a sharp increase in November and the modest drop hardly points to a slowing in the market, especially since it was the second highest pace since November 2009 when the federal tax rebate was about to end. Yes, there were expectations that sales would rise but we have seen an up and down monthly pattern all year, so chill. Activity varied across the nation with the Northeast and West posting solid increases but the South and Midwest experiencing a softening in sales. But the eye-opener in the report was the disappearance of supply. The number of homes on the market fell to the lowest level since January 2001. When supply is adjusted for the sales pace, we hit an inventory not seen May 2005. In other words, there are not enough homes on the market and that is leading to a surge in home prices. Between December 2011 and December 2012, median prices were up 11.5% with the West posting an enormous 17.3% gain. With few houses to choose from, don’t be surprised if mini-bidding wars break out. That could get the fence sitters attention and trigger even more sales.

MARKETS AND FED POLICY IMPLICATIONS: The housing market is continuing to progress at a solid pace and with prices now rising, the impacts should start spreading from just construction and related products to consumer confidence and spending. Homes will be moving from underwater to positive equity, increasing refinancings and improving household balance sheets. Thus, while tax increases and spending cuts (whatever they turn out to be) will slow growth this year, consumer demand does not have to be weak. Businesses will get over the fiscal cliff and debt ceiling fears and will start using all the cash they have. And once we have that attitude change (get those CEOs to a happy hour quickly) investment, the major drag on the economy, will rise. That will also lead to an increase hiring, adding to income and spending as well. We could still post good growth this year despite the attempts of government to prevent that from happening.

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RE/MAX Connection Realtors, 1000 Lincoln Drive East, Suite Two, Marlton, NJ 08053 www.goconnectionnj.com

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