Pending home sales jumped 3.2% m/m in July to the highest level since June 2007, exceeding expectations. Home sales have increased for six consecutive months, the first time this has occurred in the history of the series which dates back to 2001. The sharp upturn in home sales has been driven by the combination of greater affordability, a brighter economic outlook, and the first-time homebuyer tax credit. On a regional level, pending home sales jumped 12.1% and 3.0% in the West and the South, respectively. However, sales fell 2.0% and 3.0% in the Midwest and in the Northeast, respectively. Home sales are up y/y in all four Census divisions, with the most notable improvement of 12.1% in the West. On balance, this was a decidedly positive report, showing that the housing recovery is very much under way.

Baja Real Estate is again in in a Hot market now, no matter ocean view condo or ocean front villa, they all sell quickly while the demand has increased recently.

Home sales rose by 9.6% MoM in July after an upward-revised 9.1% increase in June. Home sales rose in every region but the Midwest. Although still off 13.4% YoY, this represents the fourth consecutive increase in the pace of new home sales. When viewed in combination with similar statistics for existing home sales it all suggests to us that the uptick in housing is not a fluke. Inventory overhang target achieved for SETQ At 7.5, the months’ supply of new homes on the market is now down below eight months for the first time since May 2007. This is almost 5 months below the peak of 12.4 months we saw in January and, at this pace, is fast approaching a normal level of between 5 and 6 months. Remember that new single-family housing inventory is one of the four metrics we track in the monthly SETQ report. The number we needed to see was eight months, and that has now been achieved. Like the sales data, this is also consistent with the existing home inventory data where the months’ supply is now 9.4 months versus a peak of 11.3 months seen in April 2008. Sales data confirm the recent home price gains witnessed in the Case-Shiller data. As of June that data showed 9 of 20 regions posting positive 3-month annualized rates of growth and showed no region where the 3-month annualized rate was below the year-over-year rate. We believe this is a sign that the
bottoming process is underway across the country.

New home sales jumped 9.6% m/m to 433,000 in July, considerably above consensus (390K) expectations. Adding to the positive signal, the data were revised to show stronger sales over the prior few months with net upward revisions of 34,000 homes. An increase in sales in the Northeast (32%), the South (16%) and the West (1%) more than offset a decline in sales in the Midwest (-8%). Sales are now up on a y/y basis in the Northeast, but are still down in the other Census divisions. The rapid gain in sales over the past few months has greatly exceeded market expectations. It has been driven by greater affordability, a brighter economic outlook and, perhaps most importantly, the first-time homebuyer tax credit. It is possible that sales will dip lower once the homebuyer tax credit expires.

Obama nominates Bernanke for second term

President Obama nominated Fed Chairman Bernanke for a second four-year term starting on January 31. Bernanke’s reappointment will have to be approved by the Senate, which seems probable given the endorsement of Senator Dodd, the head of the Senate Banking Committee.

S&P/Case-Shiller US home prices rose q/q in Q2 for the first time since Q1 06

Demand for architectural services, a leading indicator for commercial construction, continues to contract. The Architectural Billings Index rose to 43.1 in July from 37.7 in June. Remember that this is an ISM-style index where anything below 50 indicates contraction, and the index has been doing as much since February 2008. Market closely monitors this index because it leads commercial construction spending by nine months with roughly a 60% correlation. That points to continued declines in commercial construction through the end of this year with a possible rebound sometime in the second half of 2010.

Housing construction has finally turned from being a drag on economic growth to a supporter; however, both supply and demand factors will likely prevent a robust recovery. After peaking in January 2006 at 1836K, single-family housing starts have corrected by a historic 80% before bottoming in February. At the same time, the supply of new homes on the market has also corrected sharply, falling by over 50% from the peak from mid-2006, to a pace that may soon be outstripped by sales. While some maintain sluggish estimates for new home sales, the months’ supply figure (now at 8.8 months) is set to reach the 6-7 months level by early 2010. Given that this range is consistent with a balanced market, new home prices are set to stabilize before long.

There is no shortage of opinion on the wealth effect and the degree to which home price swings impact consumer spending. A recent study suggests the impact on consumer spending from housing wealth is overstated. For us, it is hard to look past the results of the recent housing cycle and not see a direct and sizeable impact on consumer behaviour. For this reason we want to refresh where we believe housing stands. Moreover, given the broad reach of housing, it is little surprise this sector commands so much attention from the Fed. The October 2008 ascension of the Chinese as the largest owners of Treasury securities has propelled the Chinese investor base to the forefront of Treasury market psyche. And the recent discussion about the $2 trillion of the country’s FX reserves being diversified has left Treasury yields well off their lows. The idea of a wealth effect is appealing since it seems to fit neatly with straight forward thinking. If your most important asset is falling in price you are likely to pullback on spending. The problem is that the detailed analyses of this phenomenon are essentially all over the place.