INDICATOR: September Existing Home Sales and Leading Indicators and Weekly Jobless Claims
KEY DATA: Sales: +9.4%; Over-Year: +20.9%; Prices (Over-Year): +14.8%/ LEI: +0.7%/ Claims: -55,000
IN A NUTSHELL: “The housing market is ‘up, up and away’.”
WHAT IT MEANS: The economy continues on its recovery path, especially when it comes to housing. Actually, the residential real estate market is largely out of control. Existing home sales surged again September to a level not since May 2006. Every region posted strong gains. Single-family demand increased faster than sales of condos. Can you say hot air balloon? Normally, sales begin to slow in the early fall, but changing location preferences and a total dearth of supply have driven buyers to make offers as soon as they find anything they might even consider living in. Thus, some of the huge annual level of demand may be chalked up to the seasonal factors failing to seasonally adjust correctly when structural demand patterns have changed. That said, actual purchases were awesome. With demand booming and supply largely nonexistent, prices are skyrocketing.
The Conference Board’s Leading Economic Index also, once again, rose solidly in September (kind of getting the picture here?). After the spring meltdown, the index has reflected the reopening that began in May and continues to this day. There was one modestly cautionary flag: The rate of change is decelerating. It is still high, but coming closer to reasonable levels.
There was also some good news in the initial unemployment claims report. Last week, the number fell sharply and went below 800,000 for the first time since mid-March. As I have noted often, weekly seasonal adjustments are largely guesses, so expect these data to be volatile. Nevertheless, the decline is welcomed. In addition, the total number of people receiving unemployment checks declined by over one million, to the lowest level since April. The only negative in the report is that the long-term unemployment numbers continues to rise.
IMPLICATIONS: Thinking about moving sometime during the remainder of your lifetime? Now might be the time to clean out the basement, paint the walls and find a realtor. If it is on the market, it is selling and in many places, for above the asking price. And that reminds me of some previous times where bidding wars broke out. Ultimately, there was a correction. Will that happen this time? It is hard to say it absolutely will, but double digit increases in prices are something to be leery about. We are going through a recalibration of the city/suburb location decision and the change in preferences could continue for quite a while. With the virus surging across the country (yes, it did turn the corner, unfortunately it went from down to up), a vaccine and universal inoculation still many months away and workers and businesses getting used to working from home, it would not be surprising if this boom continues for quite a while. The great thing about surging home sales is that we typically see a jump in home-related retail sales starting about six months afterward. That pattern should continue in this boom and could hype consumer spending for a good portion of next year. As for the markets, the investor focus on a stimulus bill makes sense, as the private sector still cannot stand on its own. But it is what is in the bill and its size that matters. Right now, there is no consensus on either.
Joel L. Naroff is the president and founder of Naroff Economic Advisors, a strategic economic consulting firm.
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