NAROFF ECONOMIC ADVISORS, Inc.
Joel L. Naroff
President and Chief Economist

INDICATOR: January Existing Home Sales
KEY DATA: Sales: -7.2%; 1- Family: -6.9%; Condos: -8.1%
 
IN A NUTSHELL:  “Winter has become a truly cruel period for the housing market.”

WHAT IT MEANS:  With the weather outside frightful, home buying has hardly become delightful. Since buyers had no place to go, home sales became slow, became slow, became slow.  Sorry, just a little storm humor.  The housing market, not surprisingly, softened at the end of last year and early this year.  January existing home sales tanked, mirroring the depressing numbers posted in the new home market.  Two things were at work: bad weather and the let down from the incentive-hyped fall demand.  True, the decline was greater than expected, but when weather is mixed into the numbers, it is hard to really know what is going on.  But you cannot simply chalk this up to Mother Nature.  Sales were off across the entire nation. The drop ranged from a low of 5.2% in the West to a high of 10.9% in the Northeast.  There had to some good weather somewhere in the country. Prices were up over January 2009 levels which is good news. In addition, the supply of homes on the market continues to fall, so the trend toward firming prices should continue.   

MARKETS AND FED POLICY IMPLICATIONS: Housing demand was not expected to be particularly solid given that first time buyers surged into the market in the fall to beat what was supposed to be the end of the government tax break.  With a few more months before the next round is scheduled to end, buyers have been taking their time.  We also shouldn’t be surprised if sales fall even further in February as the snow storms have likely taken a major bite out of activity.  That could mean the March numbers may be quite strong.  Basically what I am saying is that there is little real information we are getting from the monthly housing numbers. The markets may react to them but investors shouldn’t assume a whole lot form the declines we are seeing or any major surges that could appear once the weather turns and the incentive deadline starts approaching.  Nevertheless, this report reinforces the view that the strong growth in the fourth quarter of 2009, which was revised upward to 5.9% from the initial 5.7% estimate, is not likely to be repeated anytime soon. Indeed, with most of the growth coming from inventories and with housing probably holding back growth this quarter, we could see first quarter growth drop to below 2%.  That will only help Mr. Bernanke in his drive to keep rates low for an extended period.  

FROM: CHRISTOPHER J. BROWN, PRESIDENT

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