NAROFF ECONOMIC ADVISORS, Inc.
Joel L. Naroff
President and Chief Economist
INDICATOR: October New Home Sales
KEY DATA: Sales: +1.3%; Median Prices (Sept-Oct): -0.5%; Prices (Oct ’10-Oct ’11)): +4.0%
IN A NUTSHELL: “The new home market remains in the doldrums.”
WHAT IT MEANS: Yes, new home sales rose in October but that is about all you can say about this report. First, the level of demand is miniscule. Think about it, only 25,000 newly constructed houses are being are being purchased each month. Second, the September sales rate was revised downward, not a trend you like to see. At least there were a couple areas around the country, the Midwest and West, where builders did see a strong pick-up in sales. But the Northeast was flat and there was a sharp decline in the South. Total sales for the first ten months of the year are down nearly 7% compared to 2010 levels. As for prices, they eased a touch over the month but were up quite nicely when compared a year ago. Builders are competing with distressed houses so they have to keep prices quite low. Builders continue to do a good job of controlling inventories so demand and supply are being kept relatively in balance.
MARKETS AND FED POLICY IMPLICATIONS: Housing has been adding a little to growth this year and that is likely to continue. But the operative word in that sentence is “little”. The huge bump in jobs, income and GDP that we usually get from a rebounding housing market is not likely to be seen for quite a long time so don’t expect overall growth to be great over the next year. Still, there really is no place to go but up so we can also count on housing to be a positive not a negative in the overall scheme of things. As for the markets, the story is the consumer and the apparently robust increase in sales during the “Black Friday” weekend. With today being “Cyber Monday”, it will be interesting to see how demand holds up. With discounts really high, earnings may not be spectacular but when it comes to the economy, it is all about the number of goods bought, not the dollar value so if people spent more on discounted products, that means consumption should be up sharply. This week we get the employment report so after the euphoria of open-wallets eases, we will get back to the most important economic indicator, jobs. The November payroll gains should be a lot better than the initially reported 80,000 rise in October. There could be a decline in the unemployment rate and an ‘8’ handle would be nice to see again.
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