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

INDICATOR: Existing Home Sales
KEY DATA: Sales: +9.4%; 1-Family: +9.4%; Condos: +9.7%
 
IN A NUTSHELL:  “The surge to take advantage of the first time buyers’ tax credit hyped September sales raising the question about how much demand there really is out there for homes.”

WHAT IT MEANS:  Sometimes, government policy works.  The first time home buyers tax credit expires soon and in September existing home sales skyrocketed to the highest level in over two years.  Demand rose sharply for both single-family dwellings and condos.  Every region of the country posted large increases with the West up by 13%.  There were near double-digit gains in the South and Midwest and a somewhat more modest rise in the Northeast.  Despite that limited increase in the Northeast, sales were up the greatest since September 2008.  Indeed, we now have large improvements in demand all across the nation compared to last year. Prices fell significantly. However, the drop may be as much an issue of more low-priced homes being sold to first time buyers rather than the prices of individual homes across the price spectrum declining.  Interestingly, the number of homes on the market fell.  I had been expecting that supply would actually rise once the market turned as discouraged sellers re-entered the market.  That could still happen and if it does, we shouldn’t read the rise in inventory as being a negative sign.  
 
MARKETS AND FED POLICY IMPLICATIONS:  This is a very good report that raises almost as many questions as it answers. Clearly, the housing market is in much better shape than six months ago when demand hit rock bottom.  But the aid from government incentives is disappearing and how much demand will fall is somewhat unclear. October’s numbers will likely also show the impacts of the incentives but after that, we should see some decline.  How big a back off in sales is the question.  I suspect within a couple of months, the upward trend will resume and that will show that the housing market is okay - not great, but good enough.  Investors are still looking at earnings and the undercurrent of government policy is likely to limit the positive impact of this report. Regardless, this report is another sign that the third quarter was really good and the Fed has to start reminding investors that a zero fed funds rate is not a normal rate.  The FOMC is very likely to raise rates next year and providing some guidance what “an extended period” of low rates means would be really helpful.  

FROM: CHRISTOPHER J. BROWN, PRESIDENT

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