NAROFF ECONOMIC ADVISORS, Inc.
Joel L. Naroff
President and Chief Economist
INDICATOR: January Existing Home Sales
KEY DATA: Sales: up 2.7%; 1-Family: +2.4%; Condos: +4.7%; Median Prices: -3.7%
IN A NUTSHELL: “Distressed homes are being recycled and while that may be bad for prices it is good for the housing market.”
WHAT IT MEANS: The housing market is slowly coming back, powered by rising distressed homes demand. Existing home sales improved solidly in January to the highest level in eight months. In the spring, sales were boosted by incentives but now they are being driven by sales to investors. Regionally, only the Northeast posted a decline while the West led the way with a nearly 8% increase. The National Association of Realtors noted that all cash purchases and investor demand has been rising consistently and is beginning to make a dent in the inventory, which is falling sharply. But there is no such thing as a free home and with distressed properties accounting for such a large share of the demand, it is not surprising that prices continue to decline. In January, they were the lowest in almost nine years.
MARKETS AND FED POLICY IMPLICATIONS: This was a good report as sales are steadily rising and inventory is thinning. We have to be cautious about prices, though. Yes, they look abysmal but with so much of the market being driven by distress sales, it is not clear what has happened to the price of “normal” properties. I suspect in those cases, the price declines are limited and in those areas where foreclosures have been modest, they could even be rising. Don’t be surprised if housing adds to growth all this year, though with the pace of sales and construction so low, not a lot of jobs will accompany those gains. Meanwhile, back in the Middle East, turmoil continues and until we get some idea when it will end and what the implications are for oil and other commodities, investors are likely to remain on edge.
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