Economy Watch: Existing Home Sales Up; CBO Warns Congress; FOMC Hints at QE3

Homes sales grew. The CBO warns Congress that if it doesn't act fast in preventing budget cuts and tax hikes, another recession is in the cards. The FOMC hints that it might be triggering another stimulus.

According to the National Association of Realtors on Wednesday, total U.S. existing-home sales grew 2.3 percent to an annualized rate of 4.47 million in July from 4.37 million in June, coming in at 10.4 percent above the 4.05 million-unit rate in July 2011. “[Total] sales may reach 5 million next year, but it will require more sensible lending standards and stronger job creation to push beyond that,” NAR chief economist Lawrence Yun said in a statement.

Distressed homes–foreclosures and short sales–accounted for 24 percent of July sales, with half foreclosures and half short sales. Those numbers are down slightly from 25 percent in June and 29 percent in July 2011.

Total housing inventory at the end of July was up 1.3 percent to 2.4 million existing units available for sale (NAR counts single-family and all manner of for-sale multi-family units for its report). The current total represents a 6.4-month supply at the current sales pace by the organization’s reckoning, down from a 6.5-month supply in June. Listed inventory is 23.8 percent below a year ago, when there was a 9.3-month supply.

CBO Warns Congress About Fiscal Cliff

The Congressional Budget Office said on Wednesday that the fiscal cliff is a real thing, and that the country is at risk of falling over it. That would happen if Congress, which is at loggerheads with itself, does nothing to delay or ameliorate the “automatic” budget cuts and tax increases slated to go into effect on Jan. 1, 2013.

Inaction on this problem, according to the CBO, would cause the economy to go into recession again and unemployment to rise to perhaps as much as 9 percent over the course of next year (currently it stands at 8.2 percent). That represents roughly 2 million lost jobs with all of its concurrent misery, such as renewed downward pressure on the housing market.

Should Congress actually fix the problem, the CBO anticipates that the American economy will see continuing slow growth, as it has lately, but not another recession. The nonpartisan agency also said that the uncertainty over the fiscal cliff is already “holding back” the economy.

FOMC Gives Off QE3 Hints

The Federal Open Market Committee released the minutes from its July 31-Aug. 1 meeting on Wednesday, and it was dry reading as usual, but nevertheless hinted at the long-elusive QE3. “Participants discussed a number of policy tools that the Committee might employ if it decided to provide additional monetary accommodation to support a stronger economic recovery in a context of price stability,” the statement noted.

Then the statement said: “Many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery.” That’s about as close as the central bank is going to get, speaking in central bank-ese, to saying that it’s ready to pull the trigger on more stimulus.

Wall Street wobbled around all day on Wednesday, but ended roughly where it started. The Dow Jones Industrial Average lost 30.82 points, or 0.29 percent. The S&P 500 gained a scant 0.02 percent, while the Nasdaq was up 0.21 percent.