The story on housing data is a bit complex. The tax credits were first granted in January and were about to persist for 11 months. Each new home buyer (a citizen not owning a house for last 3 years) would receive up to 8k$ in tax credits. Those credits were expected to expire by Nov 30th so in October American households shouldn’t logically have planned home purchases finished after that date. What impact that should have on the data? First of all we already saw a big drop in housing starts. Builders afraid of weaker demand lowered the number of started projects to a mere 529k vs 600k expected. The impact on sales is not that straightforward. First, the impact on used home sales could be positive – people should have rushed to complete purchases before the expiry date and while they still had a month to do so, some could have preferred not to wait for “last minutes”. The market expects used home sales to come up (today 4 pm CET) at 5,71 million annualized (vs 5,57M in September). New home sales, to the contrary – should have suffered. This is because those sales often take some time to complete and deals signed in October might not be closed before the expiry date. For that reason, this figure – just like housing starts, might reveal an underlying strength of demand without government’s fuel. That is an important argument for those claiming that the recovery has been so far artificially produced by fiscal and monetary stimulus. Quite surprisingly, market expects new home sales (due on Wednesday) at 408k, that is 6k up from September.  

Finally, even if the number comes out weaker than anticipated, the US government is there to support the bulls. The program has eventually not only been extended (until end of May) but also expanded to those who already own a house. Those can count on as much as 6,5k$ in tax credits. While this sort of fiscal stimulus cannot last forever, it is likely to feed the bulls for a couple of next months.  

Przemysław Kwiecień Chief Economist