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Tuesday, September 25, 2012

Wellsf Fargo Weekly Economic Commentary

• Existing home sales rose 7.8 percent in August and single-family housing starts increased 5.5 percent.

• With new home inventories at all-time lows, distressed inventories falling and the Fed buying mortgage-backed securities on an open-ended basis, the housing recovery appears poised to shift into higher gear.

• Data from the manufacturing sector, however, and labor market continue to flash warning signs.

Sales of new homes appear to be poised for solid gains in 2013. Since the beginning of the year, sales of new homes are up around 21 percent ahead of their year-ago pace. Many builders have purchased lots at greatly discounted prices and with inventories of new homes at all-time lows and shadow inventories declining, builders are far more confident in ramping up activity. Moreover, with the share of distressed transactions continuing to decline and home prices modestly increasing, the gap between the price of a new home versus the price of an existing home is narrowing. Home prices have clearly firmed with the S&P/CaseShiller 20-City Home Price Index up 0.5 percent in June, the first year-over-year gain in almost two years. More importantly, builder sentiment continues to increase. The NAHB/Wells Fargo Housing Market Index rose 3 points in September to 40, with builders noting increased buyer traffic and rising sales.

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