U.S. Existing Home Sales Rise With Distress Sales & Tax Credit

The National Association of Realtors reported that sales of existing homes during July jumped for the fourth consecutive month. The 7.2% m/m rise to 5,240 (SAAR) was to the highest level since August of 2007. The increase in July sales beat Consensus expectations for sales of 5.00M homes. Total sales include sales of condos and co-ops.

Sales of existing single-family homes alone increased 5.5% last month and were up 13.8% from the January low. (These data have a longer history than the total sales series).

Recent sales have been helped by a tax credit for first-time home buyers. The credit of up to $8,000 extends though the end of this year. The full details of the home-buyer tax credit can be found here.

The improvement in home sales looks to have inspired potential sellers to put more homes on the market. The number of unsold homes (condos & single-family) for sale rose 7.3% during July to the highest level since November. Nevertheless, year-to-year inventories were down 10.6%. At the current sales rate there was a 9.4 months' supply on the market. The figure was stable with June and was near the lowest since June 2007. For single-family homes the inventory rose 3.1% m/m (-13.2% y/y). At the current sales rate there was an 8.6 month's supply of homes on the market, the lowest since 2007.

The median price of an existing home dipped m/m to $178,400. Though prices were still lower than the year ago level, they have risen by 8.3% from the January low.

The data on existing home sales, prices and affordability can be found in Haver's USECON database. The regional price, affordability and inventory data is available in the REALTOR database.

Reflections on a Year of Crisis is the title of this morning's speech by Fed Chairman Ben S. Bernanke in Jackson Hole, Wyoming and it is available here.

PMI Signals Are Lagging - PMI’s have lagged the pickup but they are near to neutral and the Markit overview index has reached the neutral mark of 50 in August. Markit’s overall PMI reading for the Euro Area rose to this neutral level of 50 in August lagging behind the GDP signals that in Q2 already turned up for two key E-Zone countries (Germany and France) and with the Zone’s own GDP barely falling. Purchaser indices that usually are more sensitive than other macro-data have not been leading in Europe and that is a point to ponder.

Large jumps in August play catch-up -- The jumps in the respective MFG and Services indices were large. For Services it is the largest jump in its history that extends back to mid-1998. For the MFG index it is the eighth strongest jump in a history that goes back to mid-1997.

Still, the fact that the big signal from the PMIs is lagging is a curiosity.

Thinking more about PMIs -- PMI indices are diffusion indices and formally they are indices of the breadth of change in a certain direction (up or down, greater or less) rather than of strength. The overall index is a weighted average of components that look at specific aspects of an industry getting diffusion responses on each. However, these indices are used as a proxy for strength since the correlation with ‘strength’ is high for ‘breadth’. Still we should bear in mind always that ‘strength’ is not in fact ‘breadth’, they are different things and sometimes the difference matters, even if most of the time it does not.

Viva la difference?? If you have never thought of the PMIs this way before, note that this concept has been long in play in analyzing trends in the stock market. The stock market index is a weighted average of stocks, an index that goes up and down, but technicians also look at indicators of ‘breadth’. And when they do, they DO NOT call them ‘strength’ but when breadth and strength go together a rally’s strength is said to be more powerful. Sometimes the market goes ‘up’ but decliners ‘outpace’ advancers. This is exactly the same thing as looking at output Vs its diffusion. Output and diffusion do not always go in the same direction. Manufacturing output is like the stock index and the MFG PMI is its breath measure. Services output is compared to the breadth of the services PMI. But in the case of our economic statistics we get the breadth reports much more quickly than we get the output reports and so the diffusion indices take on a life of their own and become proxies for ‘output.’

The diffusion difference - What the diffusion indices usually do, is to pick up small improvements that might be scattered around the economy and lost. Diffusion indices create a signal that would otherwise get lost in the aggregation of data with weighting always going to the largest of reporters. So this time around it seems that the opposite is happening. A few larger reporting firms are doing better and driving the macro -data higher while the smaller firms are not yet on board for the ride. This is not surprising with all the government intervention (…in Europe, the UK and the US, in fact) since government tends to work ‘best’ with big business. If the assistance works properly (or at all) stimulating output at the larger firms (like auto makers) should create some knock-on effects that will draw other firms into the upswing. And the PMI reports may be signaling that, in August, this is finally happening. But this process is a bit like trying to start a fire with wet wood on windy day. Just because you have gotten a spark does not means you will be able to nurse a bone-warming bonfire out of it. Still, with a spark, you have a chance. And there is some tentative evidence that growth is spreading- at last. Getting the diffusion indices on board is crucial – they remain important barometers of the success in spreading growth.