Implications: Existing home sales slipped 3.2% in October, coming in almost exactly as the consensus expected. Some analysts are saying the decline signals a slowdown in the housing recovery, but these fears are way overblown. Sales in October look to have been slightly affected by the government shutdown as some closings were delayed because income could not be verified by the IRS. For this reason, we expect a nice pop in sales in November. Even with this temporary issue, October's level was the fifth highest for any month since the homebuyer tax credit was about to expire in late 2009. Keep in mind with all of the recent existing home sales data that realtors have noted a lack of inventory is also holding down sales. As the top chart to the right shows, this kind of statistical noise is no different than what we've been experiencing since the recovery in home sales started in earnest 2010/11. We also do not expect higher mortgage rates to undermine the recovery. Higher rates reflect expectations of faster economic growth and rising home prices will make buyers more willing to buy than back when mortgage rates were lower but buyers thought home prices might fall further. The months' supply of existing homes (how long it would take to sell the entire inventory at the current selling rate) ticked up to 5.0 in October but this is still lower than a year ago (5.2) and much lower than two years ago (7.6). The median sales price of an existing home rose 0.5% and is up a whopping 12.8% from a year ago. We expect continued price appreciation in the years ahead, but as more inventory enters the market the year over year gains will not be as robust. In other housing news, earlier this week the NAHB index, which measures confidence among home builders, came in at 54 in November, unchanged from October, and is still hovering around the highest levels in eight years.
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