Home Sales Perk Up

Good news: sales of new homes rose 5.7% in September to an annual rate of 389,000. This is the highest rate of activity since early 2010 when the imminent expiry of the first-time home buyer tax credit artificially boosted sales.

That we can look at today’s figures with some optimism is telling. September’s level of activity is 38.9% up from the rock bottom of 280,000 in May 2010, but is way, way, below the peak we saw in 2005 when sales were running at annual rates of about 1.4 million. Such is the devastation of a bubble.

Two other and related items in today’s report: median home prices rose quite sharply, up 11.7% over a year ago to $242,400, probably reflecting the lessening impact of cut priced foreclosure deals; and the inventory of unsold homes dropped again to 4.5 months supply at current rates of sale, from August’s 4.7 months. Both support the notion of solid, if unspectacular, recovery.

When we add today’s news to the recent string of similar stories in real estate and consumer confidence, we can detect a clear improvement: the recovery continues along its slow and steady trajectory.

Indeed some recent studies have argued that the recovery is actually better than we could have hoped for given the magnitude of the financial crisis and the run up in credit during the bubble years. Evidently the combined efforts of the Fed, especially its various QE programs, and the short term impact of the stimulus back in 2009/2010, made sure that we achieved a growth path a little higher than similar historic disasters indicated we should have experienced. That little nugget has been lost in the swirl of politics, but those of us concerned with reality should take some comfort: active policy works. The government is a positive agent in an economy, and not simply a regulatory and taxing burden on the private sector.

Good news indeed. But don’t get carried away.