Implications: After increasing 10% in September, existing homes pulled back 2.2% in October. Some of the decline may have been due to the temporary moratorium on foreclosures, in which case the end of the moratorium may boost sales in November. Regardless, we believe the underlying trend will be upward over the next year, as sales rebound without artificial government support. Although the data will zig and zag from month to month, we expect the rebound trend to continue until sales get back up to about 5.5 million units at an annualized rate. And we expect the rebound even if mortgage rates float back upward. As buyers get more confident about the state of the economy, private-sector job creation accelerates, and purchasers become more confident that their homes will rise in value rather than decline, they will be more willing to buy homes even if interest rates are higher. For example, mortgage rates averaged about 7.5% in the late 1990s and were not an impediment to rising home sales. Another idea to remember is that when other analysts talk about the "shadow inventory" of homes, you should think about the "shadow demand" for rental properties, which will fill vacancies elsewhere. In other news this morning, the Richmond Fed index, a measure of manufacturing in the mid-Atlantic, increased to +9 in November from +5 in October. The consensus had expected a smaller gain to +6.
Click here for the full report.
|