Economy Watch: Housing Sales The Latest Good News, Equity Markets Don’t Care

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 drop off 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 over 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 FOMC minutes released on Wednesday.

Or maybe it was mere panic, which will either blossom into a full-fledge 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 lost only 0.81 percent.

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 importantly, 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 “normal,” 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: 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 in better for that metric. But NAR didn’t offer an unalloyed good report about housing. NAR 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.