Thursday, March 23, 2006

That's Why They Call It Forecasting...

So just when most observers of the real estate market were starting to get confident that the real estate market peaked in Aug 2005, existing home sales for February beat expectations. Thursday's data had the perverse effect of being negative for stocks (in Wall Street parlance - when the economy is good and companies are experiencing earnings growth, the Fed will keep raising rates, which will draw money from stocks to bonds ---- when the economy is weak, the Fed will stop raising rates, allowing money to flow back to stocks) but as with most economic data the headline does not tell the entire story.

February existing home sales

An important number in this release was median price. After peaking around $220k in Aug 2005, the median price has slipped about 5% to $209k. This is clearly a reflection of higher interest rates and some softening of demand. I hate to use the weather excuse, but it was really warm in January 2006 and warm weather in the winter helps sell houses. Many of those January sales probably closed in February and may have effected the data.

So, in general, I'd say that Wall Street is right to assume that the Fed is not done raising interest rates, but I believe that it has less to do with our domestic economy than it does with Japan's resurgence (a topic for another time).

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