November New Home Sales

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

INDICATOR: November New Home Sales
KEY DATA: Sales: 315,000 (up 1.6%); Nov ’10-Nov ‘11: +9.8%

IN A NUTSHELL: “The choices may be limited but the sale of new homes is moving up anyway.”

WHAT IT MEANS: After falling apart in the summer of our discontented Congress, new home sales have been on a steady upward climb. The November pace was just about at its highest level this year. The October number was revised upward and if that happens with November, we could see the rate break that high. Still, the level is ridiculously low and is about one-quarter the pace hit at the peak of the boom. The current sales pace needs to more than double before we can say that demand is decent. With so many distressed homes on the market, developers are “building down”, constructing smaller homes so the price continues to fall. At the same time, though, the supply is being kept under control. Indeed, the number of homes for sale hit the lowest level in the forty nine year history of the data.

MARKETS AND FED POLICY IMPLICATIONS: The recovery in the housing market is under way but it is also glacial. There is not much hope for the new construction segment of the market as long as the overhang of distressed homes remains so high. Still, up is better than down and the remaining builders are probably seeing better sales, at least compared to last year. In any event, it’s time to do some food shopping for the weekend so let me say to all:
Happy Holidays
RE/MAX Connection Realtors disclaimer:
RE/MAX Connection Realtors are not licensed financial advisors, and are not providing any financial advice, you should consult with a licensed financial advisor prior to making any financial decisions. RE/MAX Connection Realtors are only 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 New Home Sales

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

INDICATOR: July New Home Sales
KEY DATA: Sales: 298,000 units annualized (down 0.7%); Median Prices (Year-over-Year): +4.7%

IN A NUTSHELL: “With all the uncertainty about the debt ceiling and the economy, it is not surprising that buyers shied away from signing on the bottom line to buy new homes.”

WHAT IT MEANS: New home sales edged down once again as buyers just don’t want to commit to anything right now. The level of sales is pitiful, being only slightly above the all-time low set last summer. Thus, while the year-over-year increase of nearly 7% might look good, it is simply coming off the lowest of lows. Regionally, the sales numbers are totally bizarre and reflect the limited size of the market. In the Northeast, purchases doubled. Of course there were almost no homes sold in June so the increase only brought demand back to more “normal” levels. There was a small increase in the Midwest but moderate declines in the South and West. Builders recognize their plight and they are basically doing no speculative building. The number of homes for sale fell. You probably have to go back to Colonial times to see the number of houses on the market this low (okay, that’s a small exaggeration but you get the picture). As for prices, they were up fairly solidly over July 2010 levels. A somewhat larger percentage of the homes selling for over $500,000 pulled up prices.

MARKETS AND FED POLICY IMPLICATIONS: This report reminds us that the recovery cannot count on the housing sector adding much to growth. That is hardly a surprise. The pressures facing home builders do not end with the economy as they also have to face the reality of price cutting in the distressed home segment of the market. Worse, the level is so low that even strong increases in sales and housing starts will not add that much to growth. But as long as residential activity does add a little to growth, which it is likely to do, we are okay. With the Fed going on its “camping trip” to Jackson Hole this week, everyone is waiting to see what, if anything, Mr. Bernanke has up his sleeve this year. I suspect he will simply lay out the tool box and make it clear that the FOMC is “locked and loaded” and ready to pull the trigger on any and all the policy tools it has available. Whether those policies constitute treason, I leave up to the reader, but with the Fed the only game in town, the pressure is on to make sure the slow recovery does not fail. Mr. Bernanke is an expert on the Great Depression and he knows policy missteps cut short the attempts at recovery. While moving to restrictive fiscal policy may be the same mistake made in the 1930s, the Fed will reiterate that it will pump as much into the economy as it can. Whether lower rates can do anything is another story.
RE/MAX Connection Realtors disclaimer:
RE/MAX Connection Realtors are not licensed financial advisors, and are not providing any financial advice, you should consult with a licensed financial advisor prior to making any financial decisions. RE/MAX Connection Realtors are only 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 Employment Report

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

INDICATOR: July Employment Report
KEY DATA: Payrolls: 117,000; Private Sector: 154,000; State and Local Governments: -39,000; Unemployment Rate: 9.1% (down 0.1 percentage point)

IN A NUTSHELL: “You can tell how worried people are when 117,000 new jobs actually look like a good report.”

WHAT IT MEANS: The reports of the death of the recovery appear to be quite a bit premature. The private sector added jobs at a decent pace in July. Okay, the level is clearly not enough to get the unemployment rate to fall very much despite the decline posted in July. Though down is good, we need better job gains in the months ahead to really make a dent in the way too high unemployment rate. This report, though, does hold out hope that that could happen. The increases were widespread with just about every sector from manufacturing through retail and services showing gains in payrolls. There was even some hiring by construction firms. Once again, we learned that there is no such thing as a free budget cut. State and local governments sliced another 39,000 more people from their rolls and are now down by nearly 350,000 jobs over the past year. In contrast, the private sector added 1.7 million workers during the past twelve months. In normal recoveries, the public sector adds workers. If the public sector simply stayed flat, there would have been over two million jobs added, a moderate not weak recovery. Even a small public sector rise would have led to the July gains being at or above 200,000 and few people would have been worrying about job growth if that were the case. Weekly hours worked and earnings were up solidly and that points to good income growth. Wage and salary income has been lagging and it is hard to get consumers to spend more if they don’t have the money to spend. Maybe that is changing a little.

MARKETS AND FED POLICY IMPLICATIONS: This report points to the simple fact that the economy is not in recession. Hopefully, that buoys fearful investors. There is no arguing that conditions are good but there is a difference between the stock markets and the real economy. Wall Street and Main Street have become delinked. So don’t assume a stock panic means the economy has suddenly nose dived. I stand by my forecast that the economy is not likely to go into another recession and indeed if the decline in oil prices holds up, falling gasoline costs should lead to better growth as we move through the fall. There are implications in this report for Fed policy. The public sector job cut backs are a real drag on growth and the debt ceiling agreement makes it clear that belt tightening will continue to restrain activity for a long time. Monetary policy will have to lean against that headwind and that means the FOMC could signal next week that it is prepared to keep rates low for a longer period of time than had been expected.
RE/MAX Connection Realtors disclaimer:
RE/MAX Connection Realtors are not licensed financial advisors, and are not providing any financial advice, you should consult with a licensed financial advisor prior to making any financial decisions. RE/MAX Connection Realtors are only 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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June Consumer Spending and Income

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

INDICATOR: June Consumer Spending and Income
KEY DATA: Consumption: -0.2%; Disposable Income: +0.1%

IN A NUTSHELL: “With gasoline prices high, incomes not growing and the craziness in Washington creating uncertainty, is it any surprise that people stopped spending?”

WHAT IT MEANS: If the recovery is ever going to gain speed, it will have to come from households deciding they want to spend money again. That will trigger the spending of the $2 trillion sitting on the books of businesses. Well, in June households didn’t hit the malls or vehicle dealers very hard at all. Consumer spending slowed, especially for big-ticket items. There was some increase in soft good items but nothing to write home about. Meanwhile, the services segment, which is nearly two-thirds of all spending, continues to go nowhere. This part of the economy normally grows solidly and consistently and the failure to do so is a clear sign that people are still extremely cautious. Of course, to be able to spend a lot of money you need to make a lot of money and income growth is extremely weak. Wage and salary income was actually down in June. As for inflation, the declining gasoline prices led to a drop in costs.

MARKETS AND FED POLICY IMPLICATIONS: It’s tough to say anything positive about a report that points to consumers spending less money and wage and salary income falling. The spring data have been pretty distressing but we already know that given the weak GDP report. The question, as usual, is where we go from here. What worries me is that businesses are deriving their strong earnings growth through productivity gains, limited wage increases and foreign activities. While that may be good for an individual firm, when most companies do that, income gains become so limited that spending and ultimately growth fades. That is the problem we are now facing. Firms are generating robust earnings but Wall Street is delinked from Main Street and those profits are not creating lots of jobs. Until that changes, there is little reason to expect a strong rebound in growth, especially given the brakes being applied by the weak housing market and the cautious financial sector. At least the debt ceiling bill didn’t cut too much spending in the short term. If there were large spending reductions and/or tax increases, the outlook for growth would be even dimmer than it is currently. Indeed, while almost no economists are marking their short-term forecasts up, the downgrades are minimal. Which raises the question I am hearing a lot today: If a budget agreement was needed to improve growth, why aren’t people more optimistic about growth now that we have an agreement?

RE/MAX Connection Realtors disclaimer:
RE/MAX Connection Realtors are not licensed financial advisors, and are not providing any financial advice, you should consult with a licensed financial advisor prior to making any financial decisions. RE/MAX Connection Realtors are only 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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June Housing Starts and Permits

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

INDICATOR: June Housing Starts and Permits
KEY DATA: Starts: +14.6%; 1-Family: +9.4%; 5+ Units: +31.8%; Permits: +2.5%; 5+ units: 8.2%

IN A NUTSHELL: “Given how low home construction was, it wasn’t surprising to see and increase but the surge in starts is an eye-opener.”

WHAT IT MEANS: The housing sector has been the major drag on the recovery. Normally, a jump in construction comes with large increases in employment. That has not happened yet. However, there may be some indications the bottom in home construction is behind us. Housing starts surged well beyond expectations in June. When the May numbers came out, I wrote the following: “Looking forward, home building should pick up soon and possibly quite solidly.” I said that because permit requests were outstripping starts and builders were not spending money on permits for fun. However, I didn’t expect this kind of increase. The gains were distributed across the nation with double-digit increases posted in all areas except the West. The movement into rental housing has triggered a major revitalization of the multifamily sector. The market does work, if you let it. Permit requests continued to move upward so construction should continue to rise in the months to come especially since the number of homes permitted but not started was up. The supply of home being built is also rising. That matches well the rise in builders’ confidence reported by the National Association of Home Builders.

MARKETS AND FED POLICY IMPLICATIONS: We have been trying to call the bottom in the home construction sector for quite some time and I think we finally have one. Of course, given how low things have been, the level of activity is still well below what would signal a healthy market. In addition, starts and permits are more in line so don’t expect double-digit construction increases going forward. However, the leading light in this sector of the economy, apartment construction, should do well and with even a modest rise in the single-family segment, housing should start adding to growth during the second half of the year. More importantly, rising construction should bolster job gains and I expect the July employment numbers to be a lot better than the tepid June gains. Investors should like this report, if they are focusing on the fundamental U.S. economy rather than the theater of the absurd being performed in Washington or the continuing uncertainty about European sovereign debt. But this is earnings season, so what businesses report will likely trump some of the economic data. As for the Fed, the members would like to see more months of increases in housing before they start thinking the soft-spot has passed. I think the second half will still be strong, though maybe not quite as robust as I expected a few months ago. We still need lower gasoline prices and I am not sure that is coming.
RE/MAX Connection Realtors disclaimer:
RE/MAX Connection Realtors are not licensed financial advisors, and are not providing any financial advice, you should consult with a licensed financial advisor prior to making any financial decisions. RE/MAX Connection Realtors are only 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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April 27, 2011 FOMC Decision/Press Conference

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

April 27, 2011 FOMC Decision/Press Conference

“…the economic recovery is proceeding at a moderate pace and overall conditions in the labor market are improving gradually.”

Rate Decision: Fed funds rate maintained at a range between 0% and 0.25%

This was a very interesting day in the history of the Federal Reserve. There was a usual meeting but then the Fed released its updated forecast and for the first time in its history, the Fed Chairman had a formal press conference. Not surprisingly, not a whole lot of news came out of the new procedures but at least the Fed members are showing they are trying to better inform the public about the reasons and purposes of their policies.

Let’s start with the statement. As expected, rates were kept stable. The economy is hardly in any shape, given the surge in gasoline prices, to absorb a rate change or any indication that a rate change might be on the horizon. The Committee reiterated its view that it “continues to anticipate that economic conditions … are likely to warrant exceptionally low levels for the federal funds rate for an extended period.” There was also an affirmation of the intention to complete QE2 on schedule. The clear message here is that there are no current expectations that QE3 will be needed.

There was, however, a small change in the description of inflation. The FOMC did acknowledge that “Inflation has picked up in recent months” though it still described commodity price pressures as “transitory”. It advised that “it will pay close attention to the evolution of inflation and inflation expectations.” In addition, the Fed’s estimate of core inflation was raised to a more realistic 1.3% – 1.6% range. The implication is that by the end of the year, core inflation could be about 2%. That is about as high as the members would like to see it given their long range forecast. As for growth, the members reduced their expectations for 2011 and for the next two years, though the adjustments were not large. The Fed members believe inflation will be higher this year and growth will be slower than forecasted in January.

Finally, there was the press conference. The Fed Chairman handled himself in the way expected: He presented his views in an expanded manner but didn’t ruffle any market feathers. He argued the Fed could pick the correct time to start raising rates but stated that the course of the economy would determine the timing. He noted that while short term inflation was a concern, inflation expectations were not rising enough to alter policy. He did comment that with inflation rising, it would be difficult to be more aggressive, so further aggressive actions are not likely, especially if his projection of stable or even falling gasoline prices occurs. He defended the Fed’s policy as it affects the dollar by simply arguing that stronger long term growth, which he believes will happen, would strengthen the dollar in the future. Basically, Mr. Bernanke made no mistakes, added little to what we know but did show, at least to the public, that he understands their concerns and would do the best he could to get the economy and payrolls growing faster.

RE/MAX Connection Realtors disclaimer:
RE/MAX Connection Realtors are not licensed financial advisors, and are not providing any financial advice, you should consult with a licensed financial advisor prior to making any financial decisions. RE/MAX Connection Realtors are only 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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March 15 2011 FOMC Decision

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

March 15 2011 FOMC Decision

“…the economic recovery is on a firmer footing, and overall conditions in the labor market appear to be improving gradually.”

Rate Decision: Fed funds rate maintained at a range between 0% and 0.25%

Another FOMC meeting, another decision to do nothing. But that doesn’t mean there were not some interesting tidbits to glean from the comments made after the meeting. The Fed’s view of the economy is beginning to mirror reality as they have finally admitted conditions are indeed getting better. Now the “recovery is on firmer footing” rather than simply “continuing”, as was the view at the last meeting in January. In addition, instead of remarking about the disappointing job market, the Committee now believes it is improving. When you talk about the Fed, you have to remember that small word changes mean something so the modification in verbiage about the labor market does indicate a recognition that conditions are changing.

Another very interesting alteration was in the discussion about inflation. While the members did not even hint that they were worried about accelerating price increases, they did talk about it. If you are going to change behavior, it is good to discuss the situation first and that seems the case. No, the Fed is not going to raise rates very soon because the members fear that inflation is out of hand even though they did remark that “commodity prices have risen significantly since the summer, and concerns about global supplies of crude oil have contributed to a sharp run-up in oil prices in recent weeks.” They still stick to the belief that “longer-term inflation expectations have remained stable, and measures of underlying inflation have been subdued.” Recovering addicts take time to fully kick the habit but they have given warning that they are no longer blind to the issues. That may have been enough to get a unanimous vote as even the inflation hawks supported the stance. That was true in spite of the reaffirmation of the decision to continue the second round of quantitative easing. QE2 is going to be completed but what comes next is about as clear as what will happen in North Africa, the Middle East and oil prices. In other words, you tell me and I will tell the Fed and then everyone will know.

Basically, there was every reason for the Fed to maintain its current stance. With political uncertainties creating pressures on oil prices and with the earthquake and tsunami rocking Japan, this was hardly the time to start even talking about tightening. Mr. Bernanke has been arguing that the Fed must make sure the recovery succeeds and recent events show that his counsel has made sense.

RE/MAX Connection Realtors disclaimer:
RE/MAX Connection Realtors are not licensed financial advisors, and are not providing any financial advice, you should consult with a licensed financial advisor prior to making any financial decisions. RE/MAX Connection Realtors are only 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 East Lincoln Drive, Suite 2, Marlton, NJ 08053 www.goconnectionnj.com

February Supply Managers’ Manufacturing Index

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

INDICATOR: February Supply Managers’ Manufacturing Index
KEY DATA: ISM (Manufacturing): 61.4 (up 0.6 point)
IN A NUTSHELL: “”Manufacturing continues to soar and that is the best indication that the economy was improving before the oil price spike.”
WHAT IT MEANS: There is still a lot of uncertainty about the state of the economy and that has gotten worse now that oil is hovering around the $100 per barrel level. But at least we can say that conditions were pretty decent before the chaos in North Africa led to the sharp increase in energy. The manufacturing sector continues to expand at a robust pace, according to the National Institute for Supply Management. The February survey of purchasing managers rose a little in February. While the improvement was small, it is the level that is awesome. You have to go back to 1983 when the economy was bouncing back sharply from the back-to-back recessions to see an overall activity index this high. New orders, including exports and imports, are not only strong but they are growing faster. Production is accelerating and backlogs are building as well. As a consequence, firms are hiring new workers to meet the expanding demand. Indeed, the employment index is one of the highest in the sixty three years this index has been compile. On the other hand, cost pressures are building and while a whole variety of commodities were up, there were none that were reported to be down.
MARKETS AND FED POLICY IMPLICATIONS: This is a strong report that under most circumstances would make everyone smile. But the skyrocketing cost of energy is overhanging the economy. Mr. Bernanke chimed in on that issue today indicating he was not that worried about the higher costs unless they were sustained. That makes sense since he is looking well down the road. But in the short run, there is likely to be some easing in consumption but not enough to kill the recovery, only restrain it. The health of the manufacturing sector supports the view that without a long period of very high energy prices, we should get through this crisis. For now, though, it is likely that the first half of this year will be another period of modest recovery. Hopefully, things shake out over the next few months and we can pick up where we left off, that is, with an economy that is poised to change gears.
RE/MAX Connection Realtors disclaimer:
RE/MAX Connection Realtors are not licensed financial advisiors, and are not providing any financial advise, you should consult with a licensed financial advisior prior to making any financial decisions. RE/MAX Connection Realtors are only 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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January 26, 2011 FOMC Decision

NAROFF ECONOMIC ADVISORS, Inc.

Joel L. Naroff

President and Chief Economist 

January 26, 2011 FOMC Decision 

“…the economic recovery is continuing, though at a rate that has been insufficient to bring about a significant improvement in labor market conditions.”

 Rate Decision: Fed funds rate maintained at a range between 0% and 0.25%

The FOMC met again and what they did for two days is anyone’s guess.  Clearly, even the wordsmiths at the Fed couldn’t have had their time completely taken up by the modest but hardly substantial changes in the statement.   The members noted at the start that “the economic recovery is continuing, though at a rate that has been insufficient to bring about a significant improvement in labor market conditions.”  That points up the continued obsession with jobs and the unemployment rate.  Until employment growth is clearly at a sustainable level that will reduce the unemployment rate, this Fed will be loathe to change policy.  But there were cautious views about consumer spending and business investment as well. 

 Once again, the Fed stated that economic conditions “are likely to warrant exceptionally low levels of the federal funds rate for an extended period.”   The basis for this stance remains the low inflation rate.  As long as the Committee can continue to write that “longer-term inflation expectations have remained stable, and measures of underlying inflation have been trending downward”, there is little the inflation hawks can truly bleat about.  Of course that could mean a rise in core inflation would create some real issues for the FOMC.  So watch the core, regardless of your views on whether food and energy matter (I think they do) and if it starts to accelerate on a consistent basis, look for some of the members to start dissenting again. 

 As for the QE2, not surprisingly it is being continued and I expect the full $600 billion of purchases to be made.  But when we get to the late June meeting, the FOMC will have to deal with the completion of the program.  Don’t be surprised if there are no more purchases but the Committee continues “its existing policy of reinvesting principal payments from its securities holdings”.   In essence, stage one of the withdrawal of liquidity will come with the end of the quantitative easing program, state two will be the end of the reinvestment of principal and state three will be direct withdrawals of liquidity and rate hikes.  That last stage will not likely occur before late this year.

RE/MAX Connection Realtors disclaimer:
RE/MAX Connection Realtors are not licensed financial advisors, and are not providing any financial advise, you should consult with a licensed financial advisor prior to making any financial decisions. RE/MAX Connection Realtors are only 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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December Existing Home Sales

NAROFF ECONOMIC ADVISORS, Inc.

Joel L. Naroff

President and Chief Economist

INDICATOR: December Existing Home Sales

KEY DATA: Sales: +12.3%; 2010 Annual: -4.8%

 IN A NUTSHELL:   “With the confusion from the government’s buyers’ incentives finally a thing of the past, it appears that the housing market is getting better.”

 WHAT IT MEANS:  The weakest link may be finally eating some spinach.  Existing home sales soared in December wiping out the downturn that appeared after the first time/long time buyers’ incentives disappeared.  It looks like buyers are coming in to the market and that is occurring throughout the nation.  Every region posted double-digit gains.  The National Association of Realtors noted that distressed homes made up a significant portion of the sales with the percentage rising to 36% from 33% in November.   Prices eased back but largely because of a sharp drop in the West where foreclosures are the way to go.  There were increases in prices in the Midwest and South and a minimal decline in the Northeast.  For the year as a whole, median home prices rose a modest 0.3%.  Still, they were up.  The inventory of homes fell with the number of houses available down and the months of supply also off.  

 MARKETS AND FED POLICY IMPLICATIONS: This was a solid report that points to a firming in the housing market, at least for existing homes.  Clearly, distressed properties are a critical part of the recovery as those homes generally sell at a significant discount.  That makes it difficult for new home builders to compete and that part of the market will likely continue to lag.  Investors are becoming a very significant part of the market as they bought about 20% of the properties in December, according to the National Association of Realtors.  That is a good thing as the inventory has to be reduced.  Investors are not simply flipping the homes but are often renting them out, matching need with supply.  This is a valuable part of the process of working through the excess number of homes built last decade.  The sooner that happens, the quicker the housing market will return to normal.  This report is another in a long line that point to the recovery improving and investors and members of the Fed should read it that way.