Joel L. Naroff
Chief Economist

INDICATOR: June Existing Home Sales
KEY DATA: Existing Home Sales: +3.6%; 1-Family: +2.4%; Condos: +14.0%

IN A NUTSHELL: “The turnaround in the housing market appears finally to
be here and indeed may be gaining some speed.”

WHAT IT MEANS: Housing may no longer be the weakest link. Existing home
sales rose in June, the third consecutive monthly increase. Demand has clawed itself back to where it was a year ago, a very nice signal that the market has not only hit bottom but is making its way back. Importantly, demand rose in every region of the country. In the West, which is the poster child for problems, sales were well above what they were a year ago.
Yes, many of those purchases were for foreclosed homes, but a sale is a sale. While demand was stronger for condos and coops than signal-family structures, we shouldn’t take much from that. The condo market is more volatile. Meanwhile, sales of single-family homes were actually higher in June than they were in June 2008. The inventory of homes for sales fell a little but is still too high and median prices are down by over 15% for the year.

MARKETS AND FED POLICY IMPLICATIONS: This was a very good report. One or two months of gains doesn’t tell us a lot. Three consecutive months of rising sales provides so hope that an upward trend is actually under way.
The increases are also well distributed across the country. While some
may argue this is just a rally being caused by tax incentives and foreclosures, I disagree. Does it really matter what type of home is sold?
Not really. I believe that prices have come down significantly enough to encourage buyers to start making offers. We are also seeing prices start to rise off the bottom. Given that so many of the sales are foreclosures, the increase in the purchase price, even if it is not adjusted for seasonal trends, is still a good sign. When buyers see prices rise they get off the fence so they don’t get priced out of the market. In addition, the belief that if they wait they can get a lower price disappears. Thus, look for demand to continue to improve. The markets should like this report.
Investors are looking for reasons to believe earnings will rise going forward and a turn in the housing market can only improve expectations. As for the Fed, Mr. Bernanke commented that he thought the market was stabilizing (Fed Chair rarely goes out on a limb) and that indeed seems to be the case. This report reminds us that investors will soon have to focus more closely on when the Fed will start removing some of the stimulus in the system and also how fast they will do so. When we get to that point in psychology, we can really believe the recession is over.

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