The DOW surged today on news that existing home sales were more than 10% higher in October than in September.  On the surface, this is great economic news.  But if you look at the situation a little more closely, the DOW’s rebound today is more of a matter of how the news was framed rather than the story behind the spike in home sales.  I argue that the good news is really no news at all, as it reflects a broken economy and people wanting to take advantage of stimulus money.

Back before the extension of the $8000 tax credit for first time homebuyers was passed there were thousands of people rushing to close on their first time home purchases before the November 30 deadline.  Many of them pushed to hard or settled for a home that was less than perfect so they could be sure to claim the credit.  I think we are seeing an artificial inflation in the home sales numbers due to the fact that people were really pushing to get mortgages dialed in before the end of November.  And I’m not just talking about the homebuyers themselves.  There certainly was an incentive for the mortgage brokers and real estate agents to complete the sale and close by that time as well.

The bubble that was created in the real estate market by the first time homebuyer tax credit is inflating the numbers in a way that is obvious.  Of course there will be artificially high home sales numbers in October and November.  The real test will come in December and January, as people are less apt to go out there and really put a lot of energy into the home buying process to take advantage of the tax credit.  Now that the credit has been extended, I don’t believe there will be such a robust push to buy or sell homes as there has been in October and November.  The numbers should agree and we can all go about our usual business trying to get the economy kick started.  The spike in the DOW will be short lived- mark my words.

All of this good news has people excited for a recovery before summer.  I doubt that it will appear, as the commercial real estate market is due for a massive crash.  People are also having an exceedingly hard time rustling up any credit whatsoever.  And as more and more people begin to lose their unemployment benefits, the dried-up credit markets will serve to further exacerbate the economic problem.

Look for the housing sales numbers to plummet again after the start of 2010.  Once the public realizes that the bubble that was hyped up in November and December surrounding the increase in home sales has popped, the economy will be no better off than it is currently.  I also expect a dismal holiday season for retail sales, although that’s another subject altogether.  Coupled with the artificial spike in the real estate market and you have a recipe for an extended economic crisis.  We are nowhere near a recovery until the jobs return.  And even that many not happen any time soon.