Economy Watch: Housing Sales Improve, but the Equity Markets Don’t Care

The National Association of Realtors' good news was overshadowed by flashier news from the world's equity markets.


By Dees Stribling, Contributing Editor

The National Association of Realtors had good news on Thursday about housing sales, but that was overshadowed by flashier news from the world’s equity markets. Namely, that investors, in their lemming-like way (much of which is automated, but the principle is the same), decided to sell in great numbers. The dropoff began in Asia, passed through Europe, and then hit the U.S. equities markets as the Earth turned. The reasons were vague: worries about the Chinese economy, which has been wheezing a lot lately, including the fact that Chinese factory orders shrank at their fastest pace in more than six years in August. Or maybe the drop was over concern that the Fed will really pull the trigger on interest rates in September, as hinted by the Federal Open Market Committee minutes released on Wednesday.

Or maybe it was mere panic, which will either blossom into a full-fledged correction, which some observers believe is coming, considering how much the markets have gained (bubbled?) since the end of the recession. Or the markets could bounce back and this week’s movement will be forgotten. In any case, on Thursday, the Dow Jones Industrial Average dropped 358.04 points, or about 2 percent, to 16,990.69, its lowest level since last October. The index has lost 4.7 percent so far this year. The S&P dropped 43.88 points to 2,035.73 and is now down 1.1 percent for the year. Interestingly, while down on Thursday, the FTSE NAREIT All Equity REITs Index has lost only 0.81 percent this year.

Meanwhile, the National Association of Realtors reported on Thursday that existing home sales increased for the third consecutive month in July, up 2 percent to an annualized rate of 5.59 million units in July. Probably more important, the rate was up 10.3 percent from a year ago. In short, the housing market is giving every indication of trying to return to more a “normal” level — that is, pre-recessionary numbers. While existing home sales don’t add much directly to GDP, it’s an important metric that reflects the strength and willingness of households to invest in housing. Such households tend to be willing and able to spend more on other things, as well, which is good news — at least for the retail sector.

Another sign of strength in the housing market: The NAR also reported that distressed sales — foreclosures and short sales — declined to 7 percent in July from 8 percent in June; they were 9 percent a year ago. Less is better for that metric. But the NAR didn’t offer an unalloyed good report about housing. It also noted that with home prices edging up — about 5.6 percent since last year — and inventories down, the number of first-time homebuyers is down, which is bad for the longer-term outlook, since first-timers eventually trade up, maybe more than once. They also form the pool of buyers that allow older owners to trade up, which stimulates the demand for new houses.