Home resales lift off

Home resales in October were up 10.1% vs. a consensus expected increase of 2.3%. The gigantic outperformance has to be attributed to the first time home buyer tax credit that Congress voted to extend.

What this means:

While the number is certainly welcome and will likely drive the financial markets much higher, the fact is that the economy still is only doing well in the presence of big government incentives. So this is the first thing to note. The second thing worth paying attention to is that home prices continue to fall, though at a slower pace than they have in the last year. This is a good thing in the long run because it means that even with the artificial purchase inducement of the first time home buyer tax credit, markets still are continuing to function. That is, markets are still reflecting reality. Amen! And last worth noting is that big surges in home sales takes these houses off of the market, thus reducing home inventory. When there is lower supply of any good or service, it lifts pressure on prices moving downward. This is also a good thing.

Jason