January Existing Home Sales
Economics in a nutshell: “Home sales are going nowhere as a dearth of supply is constraining buyers’ choices.”
INDICATOR: January Existing Home Sales
KEY DATA: Sales: -4.9%; Median Prices (Year-over-Year): +6.2%
IN A NUTSHELL: "Economic performance remained mixed in January as manufacturers kept expanding but housing continued to wander around."
WHAT IT MEANS: Another day of data, another indication that the economy, or at least parts of it, is not picking up a whole lot of steam early this year. Existing home sales moderated in January; it wasn't all weather. The declines were across the nation with the largest drop coming in the West. I don't think cold weather was the driving force for the fall off in that part of the country. Demand for both single-family units and condos also fell, so we really are talking about a broad-based drop. One of the big problems is the supply of homes. Basically, buyers have limited options as the inventory is hovering near some of the lowest levels we have seen in the last fifteen years. If you cannot find the house you want and you don't need to move, you don't buy and to some extent, that is what is happening. Of course, there are two sides to every market and with pickings slim, buyers are having to pay up for the properties on the market, and prices continue to rise at a very solid pace.
There were several other reports released today that are a little more upbeat. The Chicago Fed's economic activity index picked up a little in January after having fallen in December. Growth is not as strong as it had been, but the deceleration may not be continuing. The Dallas Fed's Texas manufacturing survey showed minimal growth, but given what is going on in the oil patch, that is really not that bad. Finally, ADP released its fourth quarter 2014 Workforce Vitality Index. Wages rose pretty solidly at the end of last year. However, the gains varied widely across industries with strong increases in finance, manufacturing and trade, but more moderate rises in professional services and education and health care.
MARKETS AND FED POLICY IMPLICATIONS: While mortgage rates remain quite low, so do sales. The housing market keeps taking one step forward and a half step back. But the best news was the rise in prices. More homeowners are finding themselves back above water and equity is building. Soon, there the improvement in equity positions will be large enough that owners who couldn't sell but wanted to will be able to list their units. That would increase supply and make house shopping easier. Sales should start increasing again and I wouldn't be surprised if they accelerate solidly in the second half of the year, even if mortgage rates rise. For Fed members, it is about inflation. Wal-Mart's wage increase announcement, the strong wage gains seen in the ADP report and solidly rising housing prices seem to indicate some underlying pressures on costs. I am not sure what is the best measure of wages, but given the lumpy nature of compensation changes, the data may not be reflecting the current condition of labor costs. So the Fed members need to look at other indicators and they are flashing red. As for investors, with Greece no longer in the frying pan, is suspect they will try to find something else to worry about. Housing may be that issue, but it isn't so weak that anyone should be greatly concerned.
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