On Monday and Tuesday, data on existing and new U.S. homes sales for February were published. What do they mean for the housing market and gold prices?

Existing-home sales increased in February by 1.2 percent from 4.82 million in January to 4.88 million in February (on a seasonally adjusted annual basis) and by 4.7 percent from a year ago, according to the National Association of Realtors. It is a rather modest gain, below the expectations of a 2-percent rise. When we look at the long-term trend, we see that this growth has slowed over the last several months. Taking into account that existing-home sales are considered a leading indicator, sluggish growth calls into question solid post-recession economic growth.

Investors should also bear in mind that the reported figure is an annualized number, multiplying the monthly seasonally adjusted error by 12 and perhaps this is why this data is often revised.

However, the most significant fact is that the median sales price of used homes jumped 7.5 percent year to year. Although higher prices are good for homeowners, they exclude potential buyers from the market and may signal weak demand. Home price inflation is a result of the low inventories (caused partially by the zero interest rate policy). In February, the inventory was down 0.5 percent year to year and was equivalent to only a 4.6-month supply. Do higher home prices, which make it more difficult for renters to become homeowners, reflect the strength of the U.S. economy?

And what about the sales of new homes? They jumped by 7.8 percent in February, according to the U.S. Census Bureau. It means that home buying in the first two months of 2015 rose to the highest level in seven years. Apparently, the weather was not as harsh as it was commonly believed (unless data will be revised down – you may not believe this, but this report has a margin of error around 15 percentage points!). Indeed, the worst housing results were reported in the West and Midwest, not in the Northeast.

The bigger mystery than the weather’s impact on the housing market is, however, why the supply of homes for sale has been decreasing despite the rising price (the median sales price in February rose by 2.6 percent from a year ago)? The answer may be that potential sellers believe that they could not sell at such rising prices. It may indicate that the economy is not recovering as fast as it is commonly believed and wages and incomes lag behind home price inflation.

In other words, wages and incomes are not even close to keeping up with home prices, while credit is keeping up only to a degree. The economy is not booming. Indeed, after the weak report on durable goods manufacturing from the U.S. Census Bureau, the Atlanta Fed's GDPNow model estimates the Q1 GDP growth at just 0.2 percent, down from almost 2.5 percent growth expectations in February.

To sum up, the data on the housing market is not as rosy as it was interpreted by the financial press. It is good news for gold investors, since the yellow metal behaves relatively well during slowdowns. Moreover, it may influence the Fed’s decision on the time and pace of the expected tightening.

Thank you.

Arkadiusz Sieron
Sunshine Profits‘ Gold News Monitor and Market Overview Editor

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