August New Home Sales

NAROFF ECONOMIC ADVISORS, Inc.
Joel L. Naroff
President and Chief Economist
215-497-9050
joel@naroffeconomics.com

INDICATOR: August New Home Sales

KEY DATA: Sales: up 7.9%; Median Prices (Year-over-Year): up 0.6%

IN A NUTSHELL: “Builders breathed a sigh of relief in August as sales rebounded sharply from the July crash.”

WHAT IT MEANS: The housing market is the focus of attention as rising rates have been creating large uncertainties about its direction.  In July, new home sales fell off the table, dropping an eye-opening 14.1% to its lowest pace since October 2013. The worry that set in was that this portion of the market, where the data are contracts not closings as is the case with existing home sales, was already experiencing rate shock.  Well, that may be happening but at least there was some snap back in August demand.   Builders managed to get more people to sign on the dotted line in all areas except the West. Something is happening out West as the sales pace was the lowest since March 2012.  I just don’t know what that is.  On the price side, sales shifted into the lower priced segments of the market and the increase over the year was minimal.  A jump in supply may have played a role but the limited price increase stands in stark contrast to what the Case Shiller home price index showed. This report, which was released yesterday, indicated continued strong price gains in July. It will be interesting to see if those increases continued in August or as the new home numbers show, they moderated.  Nevertheless, the rise over the year of 12.4% indicates that there is no slowdown in home price pressures.

MARKETS AND FED POLICY IMPLICATIONS: It was nice to see a rebound in new home sales even if they still have a long way to go before they are back to longer-term stable levels.  With existing home demand rising as well, it was a good month for relators and builders. That is good news for the economy.  Will it continue?  The Fed’s decision to not begin tapering has led to a rapid drop in rates and that should help. The 10-year Treasury note is down about 25 basis points since the meeting and 35 basis points since early September.  Mortgage rates will follow downward but whether that generates more sales or just allows the fence-sitters to exhale is unclear.  Regardless, rising home demand is critical to continued economic growth especially since the Washington Wackos are at it again. While most Senators seem to understand that you cannot shut down the government, it is not clear if many in the House have any clue.  And the debt ceiling debate is still ahead.  As I have said so many times, the only thing we have to fear is Washington itself. Be afraid, be really afraid.

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August Existing Home Sales/Conference Board Index of Leading Indicators /September Philadelphia Fed Survey

NAROFF ECONOMIC ADVISORS, Inc.
Joel L. Naroff
President and Chief Economist
joel@naroffeconomics.com

INDICATOR: August Existing Home Sales/Conference Board Index of Leading Indicators /September Philadelphia Fed Survey

KEY DATA: Existing Home Sales: up 1.7%; Prices (Year-over-Year): up 14.7%/Leading Indicators: up 0.7%/Philadelphia Fed: 9.3 (up 13 points)

IN A NUTSHELL: “It looks like the higher rates seem to got the fence-sitters attention as home sales, not surprisingly, surged.”

WHAT IT MEANS: Yesterday, Mr. Bernanke made it clear that the Fed was concerned about the impact of higher rates on the economy.  He may have a point.  Existing home sales jumped in August and the initial reaction would be that the Fed Chairman was confused.  No, higher rates don’t lead to more demand in the long run but they do in the short-term as fence-sitters panic. Sales rose in most areas with only the West reporting a drop.  Gains were pretty evenly distributed between condos and single-family units. On the price front, the news remains great.  Median prices were up robustly from last year with the increases ranging from a low of 7.6% in Northeast to a high of 18.8% in the West.

The Philadelphia Fed’s survey of manufacturers popped in early September as orders rose sharply. As a consequence, backlogs started building again and hiring accelerated.  We had begun to see a turnaround in manufacturing nationally and this report raises expectations that the improvement is continuing, especially since respondents were much more optimistic about the future.  Indeed, looking outward, the Conference Board’s Index of Leading Indicators posted a large gain and that seems to point to stronger growth over the next six months. Finally, the weekly jobless claims numbers came out and they were up.  However, two states have backlog issues related to systems changeovers so it is hard to know what is happening with claims.

MARKETS AND FED POLICY IMPLICATIONS: As most economists have been warning, when mortgage rates rise, the first thing that happens is the procrastinators start buying.  That was likely the case in August.  The real issue for the housing market and the Fed is what happens when the demand that was pulled into the summer disappears. We may start seeing that in either September or October but it is likely to appear.  Basically, while this was a great housing report, we just don’t know what the sales pace is likely to be going forward. If it is the future data that will drive Fed decision-making, there is reason to think the economy is poised for better growth in the near future.  Yes, housing sales may tail off but if manufacturing picks up and the claims levels are anything close to reality, we could see higher industrial production and better job gains. Given the tone of Mr. Bernanke’s remarks yesterday, I think we can take off the table the beginning of tapering at the October 29-30 meeting.  But improving growth could put it back in play for the mid-December FOMC soiree.  Of course, this is predicated on Congress not acting like a bunch of children and shutting down the government.  That may be too heroic an assumption to make.  In between, a new Fed Chair will be named.  That is likely to be Janet Yellen, who I have always argued was the best candidate, bar none.  She is likely to keep the focus on the economy, where it belongs.

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August Employment Report

NAROFF ECONOMIC ADVISORS, Inc.
Joel L. Naroff
President and Chief Economist

INDICATOR: August Employment Report

KEY DATA: Payrolls: +169,000; Private Sector: +152,000; Unemployment Rate: 7.3% (down 0.1 percentage point)

IN A NUTSHELL: “Firms may not be firing people but it also appears they are not hiring a whole lot of workers.”

WHAT IT MEANS: Wrong again.  I actually believed the unemployment claims numbers, which are signaling a lot better payroll gains.  Keep in mind, the monthly payroll number is the difference between terminations – which includes layoffs and retirements – and hires. Well, the layoffs may be slowing but the retirements and most discouragingly the hiring don’t look to be rising.  As a consequence, private sector payrolls are increasing at a lackluster pace. A huge (22,000) drop in movie making jobs was a prime factor in that and why that happened is anyone’s guess.  Meanwhile, early school openings likely artificially increased the number of education workers, which added 20,000 to the total. That could easily unwind in September.  And what was really disturbing was a large (74,000 total) downward revision to the June and July gains. That usually signals a slowing in hiring.  For the last three months, we have averaged just under 150,000 per month.  That is not enough to generate a whole lot of additional income. Wages and hours worked did rise nicely but that may be due to seasonal adjustment issues in the vehicle and education sectors.  About the only good news in the report was the drop in the unemployment rate to its lowest level since the end of 2008. The number of part-time workers fell but that only shows the absurdity of making any judgment about part-timers using monthly data.

MARKETS AND FED POLICY IMPLICATIONS: Job gains are just not good enough.  Whether this was a summer bummer or an emerging trend to less hiring is unclear but it is disappointing nonetheless. As for the decline in the unemployment rate, there are those that will say that it was entirely due to a drop in workforce participation.  My response is so what? As I have argued many times before, there are an awful lot of factors under way.   The overall labor force participation rate has declined fairly consistently for 16 years. The male labor force participation rate has fallen for 65 years while the female rate peaked over 13 years ago.  That shows a long-term not a short-term trend. Has the weak labor market accelerated the trend?  No doubt, but saying the declines in the unemployment rate are artificial is simply wrong.  And as for the part-time issue, part-time payrolls are growing more slowly over the year than full time and all the increase in part-time jobs went to those who wanted part-time jobs, not those that had to take part-time positions.  All that doesn’t mean much to the unemployed who still face a daunting labor market.  The mediocre payroll gains will not drive down the unemployment rate rapidly and we need to cut the rate by a percentage point to get strong wage gains.  Since the stagnation of income is the biggest impediment to growth (including hiring), this report does not bode well for a sharp acceleration in the economic activity. Whether the FOMC reads it that way is anyone’s guess, as I still don’t understand the rush to start tapering.  As for investors, this report is a reminder that if earnings will drive stock prices, there are some serious questions whether profit gains can be sustained.

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RE/MAX Connection Realtors is not a licensed financial advisor and is not providing any financial advice. You should consult with a licensed financial advisor prior to making any financial decisions. RE/MAX Connection Realtors only is providing this economic statement from Naroff Economic Advisors, Inc. for informational purposes.

Our company accepts no liability for the content of this email/blog, or for the consequences of any actions taken on the basis of the information provided. Any views or opinions presented in this email/blog are solely those of the author and do not necessarily represent those of the company. Finally, the recipient should check this email and any attachments for the presence of viruses. The company accepts no liability for any damage caused by any virus transmitted by this email.

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July Existing Home Sales

NAROFF ECONOMIC ADVISORS, Inc.
Joel L. Naroff
President and Chief Economist

INDICATOR: July Existing Home Sales

KEY DATA: Sales: (Monthly) up 6.5%; Year-over-Year: up 17.2%; Median Prices (Year-over-Year): up 13.7%

IN A NUTSHELL: “Housing activity remains solid but whether that is due to underlying strength or fears of higher mortgage rates is still quite unclear.”

WHAT IT MEANS: The housing market has been a critical component in this still lackluster recovery and the jump in mortgage rates raised questions about the sustainability of the improvement.  At least through July, all is well.  The National Association of Realtors reported that existing home sales surged in July with all regions of the country experiencing a pick up in demand.  Similar gains were posted in both the single-family and condo markets. The annualized sales pace was the highest since November 2009 and has increased at a robust pace over the year.  At the same time, while the number of homes on the market has increased somewhat over the last few months, it is still below where it was a year ago.  This lack of inventory coupled with the surge in demand had the expected impact on prices: they are soaring! And since demand and supply for both segments of the market have moved similarly, the price increases were fairly close with single-family home prices jumping 13.5% and condos up 15.5%.

MARKETS AND FED POLICY IMPLICATIONS: It is great that the housing market is holding up in the face of the jump in mortgage rates but the news is not surprising. Almost every economist has pointed out two simple facts: Mortgage rates are still relatively low keeping affordability fairly high and critically, it is normal that rising rates, especially given how fast they went up, forces people off the fence and pushes buyers to close as soon as possible. I have said many times that I expected demand to rise during the summer with the impact of the rate rise not seen until the fall.  Of course, there will be people who say that the rate increase did not matter.  The reality is that some people will not be eligible for mortgages and some will not be willing or able to pay the higher prices.  That demand, prices and mortgage rates continue to rise together provide some support for the view that sales are being pulled forward.  That doesn’t mean the market will collapse. Rates are still low on an historical basis.  But the rate of sales increases and therefor price gains are likely to decelerate, especially if tapering does start and longer-term rates filter up further, as expected. A five percent mortgage rate by year’s end is hardly unthinkable and that should slow the housing market recovery.  So enjoy the good housing numbers while you can, and investors are likely to do that, but keep in mind that they could be temporary.  As for the Fed, one can only assume they understand consumer behavior and will not assume there has been no negative impact from the rising rates.  The members also have to keep in mind that fiscal policy remains the largest negative and unknown factor for future growth.  That may not prevent the taper from beginning in September but it is a very good reason to push the start date back a little.

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July New Home Sales

NAROFF ECONOMIC ADVISORS, Inc.
Joel L. Naroff
President and Chief Economist
215-497-9050
joel@naroffeconomics.com

INDICATOR: July New Home Sales
KEY DATA: Sales: down 13.4%; Prices (Year-over-Year): up 8.3%
IN A NUTSHELL: “Builders may be optimistic but with sales down sharply, those rose colored glasses may be turning a totally different color.”
WHAT IT MEANS: Wow!  That is about the only way I can put it.  After a sharp rise in June, I had assumed a modestly pull back in new home purchases in July but what we got was much more.  New home purchases tanked in July as demand dropped back to December 2012 levels.  Households apparently decided to abandon the new home market and since these are contract signings not closings, that is a real concern.  The solid existing home numbers were partly a consequence of the time lag between agreements and closings.  We are still working through spring purchases because it is so difficult and time consuming to get a mortgage these days.  That is not the case when it comes to new home purchase numbers.  The problems were across the nation with three of the four regions posting declines in the 13% to 16% range. Only the Northeast, where sales fell “only” 5.7%, could you say that the market held up reasonably well.   As for prices, they were up solidly over the year but there has been a steady easing in sales prices over the past few months.  Since the price data are not seasonally adjusted, it is hard to know if the monthly changes are reflecting weakness or just normal patterns.
MARKETS AND FED POLICY IMPLICATIONS: This was an ugly report. But we need to be cautious when there is such a large fall off in demand with no real supporting data.  July housing starts and permits and August builder confidence were up.  It is hard to understand why developers would pay for permits, start construction and feel that conditions are getting better if people are not signing up for their product. It just doesn’t make sense.  So let’s wait a month to see if this was just a glitch in the data or a real trend. That said, the August report comes out a week after the FOMC meets next so this decline will hang over the discussion.  Why?  Because these are “real time” contract signings, not lagged closings.  If the higher mortgage rates were having an impact on the housing market, it would be seen first in these data.  While I can say that we should not make any decision based on these numbers, the FOMC will have to use them as input into their discussions. The members will be looking at disappointing chain store sales and mixed housing numbers.  The confusion at the Fed is understandable.  The economic data are not all pointing to strong growth ahead, which raises questions about the desirability of starting tapering sooner rather than later. As for investors, as long as an exchange doesn’t go down again, they will probably not be pleased with the economic implications of these numbers.  To the extent they argue for the Fed to wait, they could be taken either positively or negatively.   No, seriously.  Sometimes investors want the Fed to start and sometimes they don’t so I just throw up my hands (or just throw up) trying to figure out how the markets will react to any one economic number on any given day.

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July Housing Starts and Permits/Productivity and Labor Costs

NAROFF ECONOMIC ADVISORS, Inc.
Joel L. Naroff
President and Chief Economist
215-497-9050
joel@naroffeconomics.com

INDICATOR: July Housing Starts and Permits/Productivity and Labor Costs

KEY DATA: Starts: +5.9%; 1-Family: -2.2%; Permits: +2.7%; 1-Family: -1.9%/Productivity: +0.9%; Labor Costs: +1.4%

IN A NUTSHELL: “Housing continues to improve but weak productivity gains raise questions about future earnings growth.”

WHAT IT MEANS: So far, so good.  The jump in mortgage rates has raised questions about the sustainability of the housing market but any major negative impact has not been seen so far.  Housing starts jumped in July though all the gain came in multi-family construction.  The single-family segment softened. While there is a clear transition into condos and apartments occurring, the fall off in single-family construction to the lowest pace since November 2012 may be the first sign that some trouble is brewing.  But even that is uncertain. The National Association of Home Builders reported that builder confidence continued to rise and with permits increasing, we are likely to see additional construction in the months ahead.

While the housing sector is still solid, other data point to questions about the manufacturing sector.  Yesterday we saw that manufacturing production faded in July.  Today we got the second quarter productivity numbers and while there was a rise, they were hardly strong. The gain in the second quarter was a lot better than the large decline posted in the first but over the year, nonfarm productivity was flat.  At the same time, unit labor costs are rising.  Slow productivity and rising compensation costs don’t bode well for earnings growth.

MARKETS AND FED POLICY IMPLICATIONS: We still need to wait a couple of months to determine if what we are seeing in the housing market is a result of people acting before rates go even higher or a fundamental strength in housing.  I am just not sure. Undoubtedly, if rates rise further, as they have been on expectations that tapering will begin sooner rather than later, we will get a burst of activity and then a fall off.  That is important because some Fed members seem to be driven by headline data rather than details.  But if there are members concerned about the economy, they should take note of the productivity data.  Weak productivity gains and an unwillingness to hire don’t make for strong growth in the economy.  And if the chain store sales are any indication, the malls are no longer the in-place to be.  Third quarter growth is likely to exceed two percent but not by much and given that growth in the year ending in June was only 1.4%, it is hard to see how anyone could say the economy is healthy enough to stand on its own. Worse, it looks like all the impacts of the start of tapering are not in the market.  The ten-year note has increased 20 basis points this week and once the Fed actually begins to taper, investors will start betting on the speed of the reduction.  The Fed has lost whatever control of the long end that they had and that has some real implications for mortgage rates, the housing market and growth. Don’t you love “clear communications”?

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April New Home Sales / First Quarter FHFA Home Prices

NAROFF ECONOMIC ADVISORS, Inc.

Joel L. Naroff
President and Chief Economist

INDICATOR: April New Home Sales / First Quarter FHFA Home Prices

KEY DATA: Sales: +2.3%; Median Prices (Year-over-Year): +14.9%/FHFA Home Prices (Year-over-Year): 6.7%

IN A NUTSHELL: “Limited supply and growing demand is the ticket to higher prices and that is exactly what is happening in the new home market.”

WHAT IT MEANS: The news from the housing market is nothing but good. New home sales rose in April, though the gains were no very well distributed across the nation. Demand was off double-digits in the Northeast and less sharply in Midwest. Meanwhile, sales improved in the South and jumped in the West. That was a reversal in form from March, so let’s just say these monthly changes shouldn’t be taken too seriously. Over the year, every region is up with sales surging 29% in the nation. For the first four months of this year, demand is up about 27% compared to the same period in 2012. That pretty much tells it all. While people are out there buying, builders are not rushing to put a whole lot of inventory up for sale. The supply of new homes is going up but it not matching the rise in purchases. The result is that prices are jumping.

The price increase in the new market is not an aberration as gains are also being seen in the existing market. The Federal Housing Finance Agency’s first quarter 2013 price index posted a solid rise from the end of 2012 and the gain over the year was also strong. The index is now back to the same level as November 2004.

MARKETS AND FED POLICY IMPLICATIONS: The housing market has been leading the way but there are now some concerns whether that can continue. A jump in Treasury rates is leading to a rise in mortgage rates. The first to go is refinancing. Initially, home buyers who had been sitting on the fence may jump off fearing further increases in rates. But then there could be a slowing in demand as some people are priced out of the market. However, thirty-year rates below four percent are not very high so I don’t expect the impact to be great. And right now we have had a knee-jerk reaction to rumors that the Fed might be willing to cut back on its pedal-to-the-metal approach to monetary policy. Mr. Bernanke’s testimony yesterday did not provide much support for those views so it will be interesting to see where rates go over the next few weeks. Keep in mind, sequester and tax increases are kicking in so second quarter growth may not be that great and the negative impacts are likely to accelerate through the summer. As for investors, Japan’s sharp decline is a reminder that markets that go too far too fast are subject to corrections.

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RE/MAX Connection Realtors is not a licensed financial advisor and is not providing any financial advice. You should consult with a licensed financial advisor prior to making any financial decisions. RE/MAX Connection Realtors only is providing this economic statement from Naroff Economic Advisors, Inc. for informational purposes.

Our company accepts no liability for the content of this email/blog, or for the consequences of any actions taken on the basis of the information provided. Any views or opinions presented in this email/blog are solely those of the author and do not necessarily represent those of the company. Finally, the recipient should check this email and any attachments for the presence of viruses. The company accepts no liability for any damage caused by any virus transmitted by this email.

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

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April Housing Starts and Permits/Jobless Claims

NAROFF ECONOMIC ADVISORS, Inc.

Joel L. Naroff
President and Chief Economist

INDICATOR: April Housing Starts and Permits/Jobless Claims

KEY DATA: Starts: down 16.5%; Permits: up 14.3%/Jobless Claims: 360,000 (up 32,000)

IN A NUTSHELL: “With permits outstripping construction, look for a rebound in housing starts over the next few months.”

WHAT IT MEANS: New home construction plummeted in April, so should we worry? Not me. It’s not as if weather doesn’t matter as we saw yesterday with the industrial production number being whipsawed by utility output. So let’s not get too crazy about the drop in housing starts. Indeed, it is hard to explain a 28% drop in the South to a level not seen since last August. Has the housing market really dried up there? I doubt it. There was a double-digit decline in starts in the Northeast and a smaller fall off in the West with only the Midwest showing a gain. It is worth noting that the first number to exceed one million units annualized in nearly five years was posted in March. Also, for the first four months of the year, starts are up 29% compared to the pace posted in 2012, so it would be asking a lot to expect an even larger increase. And finally, permit requests soared over the one million-unit level and they are running above starts. As I have pointed out on a number of occasions, you need to watch the permit requests since developers are not spending the money unless they are pretty sure they will be building the houses. Indeed, the April jump in units authorized but not started is a clear indication that we should see a rebound in construction next month. The solid pace of construction so far this year has increased the supply of homes on the market and, with inventory being an issue in the existing home market, this could lead to stronger new home sales.

Jobless claims surged but that also may be a non-event, maybe. These numbers are hugely volatile and the four-week moving average rose only modestly. However, with sequestration layoffs starting to kick in, maybe there is something here to look at more closely. I don’t worry about one month increase or decrease but we have been looking for signs that sequestration is hurting and this may be the first one. We shall see over the next couple of months if that is the case.

MARKETS AND FED POLICY IMPLICATIONS: The falloff in construction and the rise in jobless claims are not what anyone wants to see. The markets, especially the bond market, have started to price in a rebound in growth. But the hurdles of tax increases and sequestration are still to be cleared and the impacts are likely to be felt more and more over the next few months so any sign of slower growth is something to watch carefully. How will investors react? These are data that argue for continued Fed aggressiveness so that is generally good. But whether that outweighs the weakness in the numbers is another issue. As for me, these numbers tell me little as they seem to be just the usual ebb and flow of volatile data.

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RE/MAX Connection Realtors is not a licensed financial advisor and is not providing any financial advice. You should consult with a licensed financial advisor prior to making any financial decisions. RE/MAX Connection Realtors only is providing this economic statement from Naroff Economic Advisors, Inc. for informational purposes.

Our company accepts no liability for the content of this email/blog, or for the consequences of any actions taken on the basis of the information provided. Any views or opinions presented in this email/blog are solely those of the author and do not necessarily represent those of the company. Finally, the recipient should check this email and any attachments for the presence of viruses. The company accepts no liability for any damage caused by any virus transmitted by this email.

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

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February Case-Shiller Home Prices/1st Quarter Employment Costs

NAROFF ECONOMIC ADVISORS, Inc.

Joel L. Naroff
President and Chief Economist

INDICATOR: February Case-Shiller Home Prices/1st Quarter Employment Costs

KEY DATA: Case-Shiller (20-City): 1.2%; Year-over-Year: 0.3%/Wages and Salaries (Year-over-Year): 1.6%

IN A NUTSHELL: “A sluggish economy may be holding back wage gains but it is not stopping the surge in housing prices.”

WHAT IT MEANS: And the beat goes on. For those who think the Fed’s policy of keeping rates down is a failure that will only lead to surging inflation, well, you are wrong and right. Wrong because the sector that the Fed is targeting the most, housing, remains the one truly bright light in the economy. Right because housing prices continue to rise sharply, as we saw in the February S&P/Case-Shiller Home Price Index report. The gain over the month was impressive and we are approaching double-digits compared to 2012 price levels. When adjusted for seasonality, every metropolitan area posted a gain both over the month and over the year. The increases from February 2012 range from a low of 1.9% in New York City to 23% in Phoenix. Half the areas had increases in excess of ten percent while another three are poised to join the ranks as their gains exceeded nine percent.

While prices in the housing market may be rising, worker earnings remain restrained. Compensation rose modestly during the first part of the year though wage gains did pick up a touch. The growing manufacturing sector is paying more and wages in the public sector are rising much slower than in the private sector, which is not going up very quickly at all. Looking across the country, compensation jumped the most in Atlanta and the least in Phoenix.

MARKETS AND FED POLICY IMPLICATIONS: The sharp jump in housing costs may make some worry but I have my best Alfred E. Neuman face on. The more people who get back above water, the more homes that will come on the market and the bidding frenzy that is going on in some places will ease. Limited supply, coupled with the low prices, is allowing people to bid up asking prices but how long that will last is good question. The Fed started its two-day meeting and some are looking for a sign that the massive easing program will be ending this year. With first quarter growth less than hoped for and with sequestration and tax increases kicking in, the FOMC is in no hurry to allow rates to start rising. That should keep the demand for housing up and price gains high. The lack of wage increases is an issue as prices continue to rise. Qualifying becomes more difficult. But for now, the benefits of strong home price increases far outweigh the risks to the housing market of the modest worker compensation gains. Investors should like these reports as they point to controlled business compensation costs and continued housing strength. But this is still earnings season and the markets have come a long way so who knows where the indices will go on any given day.

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RE/MAX Connection Realtors is not a licensed financial advisor and is not providing any financial advice. You should consult with a licensed financial advisor prior to making any financial decisions. RE/MAX Connection Realtors only is providing this economic statement from Naroff Economic Advisors, Inc. for informational purposes.

Our company accepts no liability for the content of this email/blog, or for the consequences of any actions taken on the basis of the information provided. Any views or opinions presented in this email/blog are solely those of the author and do not necessarily represent those of the company. Finally, the recipient should check this email and any attachments for the presence of viruses. The company accepts no liability for any damage caused by any virus transmitted by this email.

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

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March Existing Home Sales

NAROFF ECONOMIC ADVISORS, Inc.

Joel L. Naroff
President and Chief Economist

INDICATOR: March Existing Home Sales

KEY DATA: Sales: down 0.6%; Year-over-Year: up 10.3%; Median Prices (Year-over-Year): up 11.8%

IN A NUTSHELL: “Home prices are soaring even as sales are stagnating.”

WHAT IT MEANS: Existing home sales eased a touch in March as the demand for housing seems to have plateaued. That is true for both single-family and condo units. For the past five months, sales have ranged between 4.90 million units annualized and 4.96 million units, a very tight shot pattern. Sales were flat in the Northeast, up modestly in the Midwest and down modestly in the South and West. In other words, not a whole lot of changes were going on. In part, that may be due to the relatively modest level of inventory on the market, which is helping drive up the price of houses. The increase over the year was the largest since November 2005. The jump in prices, though, may be having the desired effect on supply. After having bottomed in January, inventories have increased over nine percent in the past two months. With the big sales period starting and with more people seeing that they just might be able to sell their homes for a decent price, I expect that the number of houses being listed should continue to increase. As for distressed homes, they were the smallest percentage of sales since the National Association of Realtors started following that number. That is good news as it indicates that the market is moving back toward more typical buyers and sellers and is less dependent upon investors.

MARKETS AND FED POLICY IMPLICATIONS: The housing market, like a number of other segments of the economy, has started to hit a wall. It is not faltering: It’s just that the strong gains we had been seeing are dissipating. That is not surprising as we are beginning to reach more normal levels of sales, which makes large increases more difficult. The rise in prices and more limited supply, especially of distressed homes, are playing a role in the moderation. But there is also the economy itself. I know that many would like to believe that you can cut government spending and raise taxes without doing any harm to the economy. But that is just not the case, as we are starting to see. So we have a variety of factors at work that are restraining housing though not stopping the progress. With investors wondering if the rally went too far, another number that has disappointed cannot help. On Friday, we get the first reading of how the economy did during the early part of the year. It should be pretty good. But that was then and with the markets having hit record highs, some caution only makes sense given that second quarter growth is not likely to be nearly as solid as what we had during the first quarter.

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