Tuesday, November 28, 2006

Bernanke Thinking About Raising Rates Despite More Weakness in Housing

Today's existing home sales report was mixed. The good news is that October's 6.24 million homes sold is better than expected. It is even slightly higher than September's 6.21 million figure. The bad news is that it is down 11.5% from October 2005. Even worse, the median price is down 3.5% from a year ago. And inventories are up almost 2% over the past month, and 34% over the past year. There is now a 7.4 months supply of previously-occupied homes on the market.

The price drop is particularly worrisome. That's because sellers don't have to sell if they don't like the offer. It's not reassuring for the housing industry that more homes sold than expected, but at lower prices.

After initially rising on the news, shares of homebuilders reversed course and sold off. There is growing concern that the housing market may not have yet bottomed.

On top of all this, Fed Chairman Ben Bernanke gave a talk today that stressed the risks of rising inflation. He disappointed investors by not making any mention of a possible interest rate cut. Many investors had been hoping the Fed would start easing soon. They weren't happy to hear the Fed is thinking more seriously about another interest rate hike.