Implications:  Existing home sales continued to show signs of life in November, rising for the second month in a row. While the headline gain of 4.8% is positive news, sales activity is subdued.  The 4.150 million pace of November is well below the roughly 5.250 million annual pace that existed pre-COVID, let alone the 6.500 million pace during COVID.  One problem recently is that since the Federal Reserve began cutting interest rates in September, 30-year fixed mortgage rates have risen back above 7%. So at least so far, the widely anticipated shot in the arm to the housing market from improved affordability hasn’t happened and most buyers continue to sit on the fence. Meanwhile, home prices are rising again with the median price of an existing home up 4.7% from a year ago. Speaking of price, it looks like the housing market has bifurcated along these lines. While the sales of homes worth $500,000 and above are up at double-digit percent rates in the past year, sales for homes below this threshold have continued to struggle. On a positive note this demonstrates that, at least at the higher end of the market, both buyers and sellers are beginning to adjust to the new reality of higher rates. However, it also suggests that inventory at the lower end of the price spectrum has all but disappeared after the inflation of the past few years. Moreover, many existing homeowners remain reluctant to sell due to a “mortgage lock-in” phenomenon, after buying or refinancing at much lower rates before 2022.  This remains a major impediment to activity by limiting future existing sales (and inventories).  However, there are signs of progress with inventories rising 17.7% in the past year.  That has helped push the months’ supply of homes (how long it would take to sell existing inventory at the current very slow sales pace) to 3.8 in November, a considerable improvement versus the past few years, but still below the benchmark of 5.0 that the National Association of Realtors uses to denote a normal market.   A tight inventory of existing homes means that while the pace of sales looks like 2008, we aren’t seeing that translate to a big decline in prices.  On the manufacturing front, the Philadelphia Fed Index, a measure of factory sentiment in that region, fell to -16.4 in December from -5.5 in November.  Meanwhile, the Kansas City Fed Manufacturing Index, the counterpart in that region, declined to -4 in December from -2 in November.

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