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Nov Existing Home Sales totaled 6.54mm annualized and were above expectati=
ons of 6.25mm. This reflects contract signings that were likely done in Au=
g and Sept as many buyers took advantage of the home buying tax credit whi=
ch was expected to expire on Nov 30th at the time. The gain from Oct was=
solely led by the single family home category as condos/co-ops were flat.=
Months supply fell to 6.5 from 7 and is at the lowest level since Dec ’06=
and is approaching its long term average, a definite plus within the data=
. The median price fell 4.3% y/o/y but rose a touch m/o/m. Sales data in=
the next few months should drop off to reflect the hangover from the tax=
credit lift which was extended into the Spring. Also looking out to 2010=
is the recent rise in mortgage rates which if holds, are at the highest=
since August at the same time that the Fed is tapering off their purchase=
s of MBS.

Coincident with the selloff in treasuries, MBS are also lower with the 30=
yr FNMA coupon today above 4.5% for the first time since Aug 21st. It’s=
up 10 bps on the day and is up 60 bps this month. So far in ’09, the aver=
age 30 yr fixed mortgage rate according to Bankrate.com has averaged about=
90 bps above the 30 yr FNMA coupon. As of last night, Bankrate had the av=
erage 30 yr fixed rate at 5.11% so there is potential for a jump in mortga=
ge rates if the action in MBS holds into early 2010.

Here is a sign that things are artificially stimulated: Abnormally high Existing Home Sales for November 2009, pushing ginormous annual gains:

“Existing-home sales – including single-family, townhomes, condominiums and co-ops – rose 7.4% to a seasonally adjusted annual rate of 6.54 million units in November from 6.09 million in October, and are 44.1 % higher than the 4.54 million-unit pace in November 2008. Current sales remain at the highest level since February 2007 when they hit 6.55 million.”

Now granted, we are comparing the heart of the credit crisis, a very weak seasonal period one year ago, with the present sub-5% mortgages and the (expected end of) a government home buying credit.

Sales are up as prices continue to fall. Lower priced homes — especially Condo and Coop sales — were up a whopping 60% over last year.

While seasonal adjustments might have impacted the monthly data, the year over year numbers are simply off the charts.

Other data points:

-The national median existing-home price was $172,600 in November 2009, 4.3% below November 2008.

-Single-family home sales jumped 8.5% (SA annual rate) 5.77 million in November; Up 42.1% above November 2008.

-The median existing single-family home price was $171,900 in November, down 4.4%from a year ago.

-Distressed properties accounted for 33% of sales in November;

-First-time buyers purchased 51% of homes in November

-Total housing inventory at the end of November declined 1.3% to 3.52 million existing homes (6.5-month supply);

-Unsold inventory is 15.5% below year ago levels, and the lowest since April 2006;

-Existing condominium and co-op sales in November were unchanged monthly, but gained 60.1% from a year ago.

-Median existing condo price was $178,000 in November, down 3.1% from year ago levels.

Bottom line: Improving sales numbers, falling home prices, reduced inventory, distressed sales still driving the narrative.

Bill over at Calculated Risk notes that going forward:

• Months-of-supply will now increase sharply as sales plunge. Do not be fooled because months-of-supply is close to “normal” levels. This is primarily because sales were distorted by the tax credit.

• Excess inventory includes existing home inventory, rental units (vacancy at record high), and various shadow inventory.  This is still near record levels.

• House prices are now falling again – and this will show up in the Case-Shiller index soon.

• This is probably the end of the “good” housing news for a while.

Here’s a NSA chart:

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Chart courtesy of Calculated Risk (annotations mine)

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Source:
Another Big Gain in Existing-Home Sales as Buyers Respond to Tax Credit
NAR, December 22, 2009

http://www.realtor.org/press_room/news_releases/2009/12/another_respond

While old news as we are just about done with Q4, the 3rd look at Q3 GDP=
reflected growth that was less than expected at 2.2% vs expectations of=
2.8% growth and down from the initial reading of 3.5%. The factors leadin=
g to the downward revisions were a greater than expected drawdown in inven=
tories, small than expected spending on national defense and state and loc=
al government spending, a smaller gain in equipment and software spending.=
Also spending on residential construction and non residential structures=
were revised down as was overall personal spending by a touch. Both expor=
ts and imports were revised up. Nominal GDP was 2.6%, down from expectatio=
ns of 3.3%.

GDP’s 3rd revision came out this morn, and it was below consensus:

“Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 2.2% in the third quarter of 2009, (that is, from the second quarter to the third quarter), according to the “third” estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP decreased 0.7%.

The GDP estimate released today is based on more complete source data than were available for the “second” estimate issued last month. In the second estimate, the increase in real GDP was 2.8%.

The increase in real GDP in the third quarter primarily reflected positive contributions from personal consumption expenditures (PCE), exports, private inventory investment, federal government spending, and residential fixed investment that were partly offset by a negative contribution from nonresidential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.”

Futures softened a bit, but are still positive.

chart courtesy of Barron’s Econoday

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Source:
GROSS DOMESTIC PRODUCT: THIRD QUARTER 2009 (THIRD ESTIMATE)
(GDP) Q3 2009

http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm

Previously:
Is the Recession Over ? Extended Transition Phase (October 29th, 2009)

http://www.ritholtz.com/blog/2009/10/is-the-recession-over-extended-transition-phase/

Big GDP Number: 3.5% (October 29th, 2009)

http://www.ritholtz.com/blog/2009/10/big-gdp-number-3-5/

Its funny how two people can look at the same data point and draw opposite conclusions. That’s what makes a horse race.

Sometimes, an inherent bias or wishful thinking comes into play; other times, its partisan ideology getting in the way. And in some instances, a little bit of common sense goes a long way.

Take as an example some recent data on appliance sales. In Q3, Best Buy reported a 10% jump in sales of major appliances (refrigerators, stoves, washers, dryers) at stores open at least a year, versus a 21% drop for the year-ago period.

Some analysts are suggesting this provides “a glimmer of hope in housing.”

“It’s the first real indication that the housing market is turning,” says Craig Johnson, president of Customer Growth Partners, a retail consultant in Connecticut. Johnson says he’s hearing from department managers and shoppers in the stores he surveys that the big appliance sales are “non-duress.” That means the purchases are being made voluntarily, not because an appliance has failed and left the consumer no choice . . .

I disagree.

Why are consumers making “non-duress” purchases? Well, if its because they are buying existing homes and replacing the older appliances, that would in fact be a positive sign for the housing market.

But we should not put the cart before the horse. Housing is falling more slowly year over year, and on a monthly basis has stabilized, thanks to 5% mortgage rates and government subsidies. That hardly accounts for the surge in sales (especially versus last year’s collapse).

My explanation involves two factors: Underwater homeowners unable to move, and Deflation.

The typical underwater homeowners are betwixt and between worlds; The average home buyer of the past decade is likely not so underwater as to be willing to walk away;  yet they don’t qualify for a mortgage mod. For most of these folks, their best option is to hunker down where they are, and ride the housing collapse out.

If you know you are stuck somewhere for five years (or longer), then you probably want to make that stay as comfortable as possible. Given the big drops in prices of major appliances — aka Deflation — an upgrade or replacement becomes a simple way for any family to raise their standard of living.

Higher end appliances have seen prices plummet 30-40%; We looked at a large French door refrigerator 6 months ago (2 doors up to, a bottom freezer drawer, integrated ice/water) for $2500; Its now $1899. The big washers and dryers (on pedastal drawers) have also seen hefty discounts. I imagine the price drops across stoves, microwaves, dishwashers are also substantial.

And America is still a nation of consumers, albeit somehwat chastened. More than a year into after the credit collapse, there must be some pent up demand out there.

Hence, a family that is underwater, but are in the 90% of the labor pool with an active breadwinner, can still spend some money on these home upgrades. And if my anecdotal experience at Best Buy, PC Richard, and Sears is anything to go by, in store credit for people with decent credit ratings are plentiful.

Consider this bit of weak analysis:

Some experts see clear stirrings in the long-morbund housing market. If efforts to ease foreclosures succeed, “there could be significant recovery in housing values in 2010,” says Michael Feder, president and CEO of Radar Logic, a real-estate data and analytics company. The firm’s composite index of 25 metropolitan areas found prices fell just 0.7% in the month ended Oct. 15, the smallest decline for that month since 2005. “Current trends are making us optimistic about demand,” says Quinn Eddins, director of research.

There is so much wrong about that, I don’t know where to begin. 1) Where foreclosures have picked up, real estate activity has risen; 2) Foreclosure abatements only delay the inevitable repricing; 3) Less bad i s not the same as optimistic; 4) By conventional metrics, housing prices still remain over-priced relative to their historical means.

Perhaps wishful thinking analysts are confusing correlation with causation. When appliance sales tick up, its usually follows a big move upwards in housing sales.  That does not really seem to be the case presently.

If anything, its likely the opposite . . .

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Sources:
White (Goods) Christmas?
Home for the Holidays
ROBIN GOLDWYN BLUMENTHAL
Barron’s, DECEMBER 22, 2009

http://online.barrons.com/article/SB126118060195297837.html

Housing Is Shaky With U.S. Aid. Without It?
MARK GONGLOFF
WSJ, DECEMBER 22, 2009

http://online.wsj.com/article/SB20001424052748703344704574610510675459626.html

Greece got a Christmas gift from Moody’s and that was only a mild slap on the wrist as their sovereign credit was downgraded only one notch to A2 which is two notches above the S&P downgrade to BBB+. The relief was evident in Greek markets where their 10 yr yield fell by 22 bps and their stock market rallied more than 3%.

In turn, European stocks are rallying but global bond markets are seeing the reverse, particularly here in the US where the 10 yr yield is rising another 4 bps to 3.72%. The stock market is now playing a game of chicken with the bond market as higher interest rates provide a real test for the US economy.

China, who led the world out of the early ’09 malaise and whose stock market bottomed last Nov, continues its correction as the Shanghai index fell to a 7 week low and is down 12% from its Aug high on worries that officials will take further steps to prevent the economy from overheating.

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If you are anywhere near a radio this mornings, I will be the guest hosting “Bloomberg Surveillance” with Tom Keene and Ken Prewitt from 8:00  – 8:30 am.

You can catch it live, or via podcast at either Bloomberg or at iTunes.

A job listing on Bloomberg — this is too funny!

click for bigger graphic

Hat tip Stephen H

Quite a few interesting reads, in what is otherwise expected to be an light week:

• Economic Improvement two-fer:

-Labor Data Show Surge in Hiring of Temp Workers (NYT)
-Treasury Yield Curve Steepens to Record Amid Growth Outlook (Bloomberg)

• Why can’t Americans make things? Two words: business school (TNR)

• Fed’s approach to regulation left banks exposed to crisis (Washington Post)

• Dollar Strength Seen in Stocks 1st Since Lehman Died (Bloomberg)

• Down-Payment Standards Eased (WSJ)

• Year’s best business books to make sense of financial crisis (USA Today)

• DNA Shifts Timeline for Mammoths’ Exit (Science Times)

• I killed myself on Facebook, and lived to tell the tale (The Punch)

• Top Ten Astronomy Pictures of 2009 (Discovery)

What are you reading?

The East Coast of the United States was slammed by a major snowstorm over the weekend, one of the busiest shopping periods of the year. Kristin Bentz of Talented Blonde explains how retailers were affected. (Dec. 21)