INDICATOR: June Existing Home Sales
KEY DATA: Sales: 5.08 million units annualized (down 1.2%); Prices (Year-over-Year): up 13.5%
IN A NUTSHELL: "Home sales are hanging in but it is too early to tell what the impact will be of the jump in mortgage rates."
WHAT IT MEANS: The Fed has been successful in getting two interest sensitive sectors, housing and vehicles, back to near normal levels. But the botched communications on ending quantitative easing has led to a sharp back up in rates. While mortgage rate levels remain at relatively low levels, even if they are not the lowest they have been, there is some concern that a slowdown in housing could occur. The June data don't give us much of an insight into that possibility. Sales edged down but the decline was modest and the rise over the year of over 15% is still quite strong. The level is solid and is still near the highest in 3½ years. No region posted an increase but none were down more than 1.6%. Similarly, the decline was evenly spread between single-family and condos. Also, prices continue to soar. That is bringing on the market more supply, though not nearly as rapidly as we would like to see. Thus, prices are likely to continue moving upward.
MARKETS AND FED POLICY IMPLICATIONS: The headline number was probably disappointing as the consensus was for a small rise in sales. So investors may start thinking that the higher rates are kicking in. They shouldn't, at least not yet. Given how long it takes to get a mortgage and close on a home, we are looking at purchases made months ago. Also, there is the likely "jumping off the fence" syndrome where uncertain buyers make decisions because they are afraid rates will rise even further. And finally, these numbers do bounce around a lot. So don't make any judgment about a small change in existing home sales. Nevertheless, further declines would create concerns that the housing golden goose may be getting killed. I don't think conditions will soften. Instead, I expect the rate of improvement to slow. That, of course, is still an issue as we need stronger overall growth to get unemployment rates down, wage gains to accelerate and spending to jump. If the Fed is joining Congress with policies that slow growth, the likelihood we will have a robust economy soon would be even less than currently perceived and right now, few economists have the economy soaring in the next eighteen months.