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Housing update

Much is being made of the unexpectedly large December decline in existing homes sales. But a glance at the top chart should make it clear that the big aberration was the November increase, which was driven by expectations that the homebuyers tax credit was expiring. Even if you assume that sales decline again in January (although the tax credit has been extended), they would still likely be much higher than they were in Jan. '09. As the second chart shows, there has been clear and impressive improvement in the fundamentals of the housing market, with the supply of unsold homes having dropped significantly over the course of the past year.

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