Still on Track

Editor’s Note: You are receiving Friday Market Wrapup earlier than usual because of the upcoming holiday and will receive next week’s edition on Wednesday as well. Have a happy holiday!

In a clear indication of how large a role the tax credit has played in driving home sales, data from the Commerce Dept data revealed that new home sales plunged 11 percent in November, a time when buyers were antsy about the credit expiring.

Two key numbers clearly encapsulate the troubles housing markets face. Although the supply of unsold homes currently sits at a 38-year low of 235,000, weak demand means that total still represents 7.9 months’ worth of supply. Oddly, median prices rose month over month to $217,400, though this price was 2 percent lower than a year ago.

Existing home sales increased 7.4 percent last month, up 44 percent from year-ago levels, and the median price slipped 4 percent to $172,600.

In short, new home prices likely have further to fall; bargain prices on existing homes appear to be bleeding off demand for new ones.

A separate report released by the Commerce Dept showed that US incomes increased 0.4 percent in November–the largest gain in six months. October’s increase was also revised higher from 0.2 percent to 0.2 percent, and consumer spending ticked up 0.5 percent last month.

Data also shows that inflation remains largely in check and within the Federal Reserve’s comfort zone. Core personal-consumption expenditures, which exclude food and energy costs, increased 1.4 percent on a year-over-year basis. October’s year-over-year reading came in at 1.4 percent as well, leaving the month-over-month reading flat. The Fed expects inflation to fall between 1.5 percent and 2 percent.

The final reading on third-quarter gross domestic product (GDP) came in lower than expected, falling steadily with each revision. Initially estimated at 3.5 percent two months ago, it has now been lowered to 2.2 percent on the second revision. Consumer spending was ultimately weaker than initially thought, as businesses made deeper cuts in inventories. Although consumer spending continues to recover, the improvement hasn’t been as pronounced as many had expected.

But this downward revision is no reason for renewed pessimism; it’s still the strongest reading in two years. And although GDP growth will likely be muted in the fourth quarter–the Cash for Clunkers effect is well behind us–there’s still plenty of reason for optimism in the near term.

Finally, the last of the biggest major TARP recipients are paying back their borrowings. Wells Fargo & Co (NYSE: WFC) repaid the $25 billion it borrowed through the program, freeing it from increased scrutiny over compensation policies. The company paid $1.441 billion in dividends to the government over the course of its participation. The government still holds warrants to purchase up to 110 million Wells Fargo shares at an exercise price of $34.01. The bank has not yet announced whether it will repurchase the warrants or allow the government to auction them off.