INDICATOR: October Pending Home Sales
KEY DATA: Pending Sales: -0.6%; Year-over-Year: -1.6%
IN A NUTSHELL: "It looks like the surge in housing is behind us."
WHAT IT MEANS: Housing brought us down, housing brought us back and now housing is resting. For the fifth consecutive month, the National Association of Realtors reported that signed contracts for home purchases softened. The government shut down may have hurt a little but it is not clear why it would have had a large impact. The details are interesting in that the West is really the only region were demand seems to be softening sharply. Pending sales in that area were down sharply in October and were off double-digits over the year. The South seems to have flattened as sales were off over the month and modestly over the year. However, demand was up in the Northeast and Midwest both in October and since last year. The situation in the West may be a special case as there was a surge in investor buying. Now, inventories are much leaner so sales are slowing.
MARKETS AND FED POLICY IMPLICATIONS: This is a strange situation where limited homes for sale are causing sales to moderate but that may actually be a good thing, as price gains remain solid. The more prices rise, the healthier the market becomes as homeowners finally get above water. Once equity builds enough, more people will start selling their homes again and the normal churn in the market will return. So the lack of inventory has some negatives in the short-term but may actually bring forth a stronger market sooner. Investors should view this report cautiously as the headline may not worry the Fed that much, if my reading of the situation has any merit (always a good question). A temporary housing sales slowdown followed by a strong rebound could be the impetus to get the economy really going. And that, believe it or not, is what not only all of us in the real world but also those at the Fed want. But that would raise some inflation flags, which would increase the possibility of tapering starting sooner than most now believe.