Implications: Existing home sales rose sharply in October to the fastest pace since 2007. Sales of previously-owned homes rose 2% in October to a 5.60 million annual rate, up 5.9% from a year ago. Although it's important to remember that home sales are volatile from month to month, we expect the general upward trend of the past several years to keep going. Remarkably, sales have hit the highest level since 2007 even though inventories remain very low. Inventories have now fallen for seventeen consecutive months (on a year-over-year comparison basis). In fact, the inventory of homes in October was the lowest for any October since 2001, in the immediate aftermath of the 9/11 attacks. The months' supply of existing homes – how long it would take to sell the current inventory at the most recent selling pace – is only 4.3 months. According to the National Association of Realtors® (NAR), anything less than 5.0 months is considered tight supply. The good news is that demand for existing homes was so strong that 43% of properties in October sold in less than a month, pointing to further interest from buyers in the months ahead. Higher demand has also driven up median prices, which are up 6% from a year ago. While this may temporarily price some lower-end buyers out of the market, it should ultimately help alleviate some of the supply constraints as "on the fence" sellers take advantage of higher prices and trade-up or trade-down to a new home. Although some analysts may be concerned about the impact of higher mortgage rates, it's important to recognize that rates are still low by historical standards, incomes are growing, and the homeownership rate is eventually going to move higher again. On the manufacturing front, the Richmond Fed index, which measures mid-Atlantic factory sentiment, rose to +4 in November from -4 in October, signaling expansion. We expect the national ISM will continue to show expansion as well.
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