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Housing Recovery Remains on Track

Wednesday, 22 August 2012 12:41 PM

INDICATOR: July Existing Home Sales

KEY DATA: Sales: Up 2.3 percent; Single-Family: Up 2.1 percent; Condos: Up 4.3 percent; Median Prices (Year-over-Year): Up 9.4 percent

IN A NUTSHELL: “With sales and prices rising, it is clear that the housing recovery remains on track.”

WHAT IT MEANS: The housing recovery remains intact. The National Association of Realtors reported that housing sales rose in July. Granted, the gain was a little bit less than hoped for and we are still not back to the levels reached earlier in the spring, but up is still good.

Modest increases were reported in the South and Midwest, but a sharper rise occurred in the Northeast.

The problem appears to be in the West, where demand was flat. Inventories of distressed homes there are limited, and that may be slowing the market down. Indeed, there was a nearly 25 percent rise in prices in the West from last July, but that may have been due more to the dearth of investor properties than to a rise in prices. That would skew the purchases more toward non-distressed homes, causing the price indices to rise. Of course, a surfeit of distressed homes artificially lowered prices, so this may just be some payback.

In comparison, median prices rose between 3.5 percent and 6.6 percent in the other regions. Those gains, though, make it clear that home prices are now increasing not falling, a warning to fence-sitting homebuyers.

Mortgage applications for new purchases were up last week, though those data do bounce around a lot.

MARKETS AND FED POLICY IMPLICATIONS: Progress may be slow, but it is occurring nonetheless, and the recovery in the housing market should help future growth.

It isn’t just new construction where housing powers economic activity. Within about six to nine months after a gain in home sales, retailers start to see rising demand for housing-related products. People buying new or existing units personalize them, and that means buying everything from new furniture to window treatments to landscaping. The increasing existing home sales should start leading to more housing-related retail sales, though I suspect the lag between the two may be a little longer in this cycle.

The Fed is intent on keeping mortgage rates low, and that helps. But a small rise in mortgage rates, when coupled with the rising prices, could help even more as potential buyers are forced to make decisions before their monthly costs get away from them.

This is a report that is not strong enough to change anyone’s mind about the state of the economy: It is growing, but not rapidly. However, the housing sector has been a key factor in this growth lately and reports like this indicate that should continue.

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Wednesday, 22 August 2012 12:41 PM
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