Publications that indirectly can be grouped under consumption indices are reports from the housing market, especially data regarding sales of existing and new homes. For a long time in the 20th century, these reports were ignored by investors because actual sales seldom differed from the average and changes on this market were little. The market value for investors started increasing in the 21st century, especially after 2002, when sales increased dramatically. Along with increasing sales, prices shoot up considered by investors a speculative bubble. Currency and real estate traders started following the publications very carefully looking for signals of market deterioration. The most important housing market publications are listed in the section below.
New Home Sales
This report is published by the Census Bureau and it tracks the annualized number of new residential buildings that were sold during the previous month. It also measures the number of homes that construction has already started or will start, but the contract between the buyer and the seller has already been signed. Increasing sales are a good sign for the economy. A rising trend has a positive effect on the nation's currency because the housing market is a leading gauge for the overall economy. Higher activity in the housing market signals that the construction industry is healthy and that consumers have the capital to make large investments. It has to be noted that new housing activity increases consumption as home owners buy goods such as appliances and furniture for their homes, and builders buy raw materials and hire more workers to meet demand.
The New Home Sales report is published at the end or the beginning of a month at 16:00 ET.
Existing Home Sales
This report is published by the National Association of Homebuilders (NAH). It tracks the annualized number of existing residential buildings that were sold or are waiting to be sold during the previous month. Higher sales are also a good sign to the economy. A rising trend has a positive effect on the nation's currency because large purchases tend to be made by consumers that are optimistic and confident in their financial position. Sales of homes trigger commissions for real estate agents, and often home owners will purchase goods such as appliances and furniture shortly after purchasing a home. Investors watch this report closely as it's the month's first demand-side housing indicator to be released.
The Existing Home Sales report is published at 16:00 ET on the 25th of each month or the next working day.
When analyzing sales of new and existing homes, one needs to pay attention to the price changes. Usually, higher home sales are a positive signal for the nation’s currency and equities markets. If prices do not follow that increasing trend, the reaction of the market can be opposite.
The condition of the housing market can also be described by other indicators that caused swings and reaction of the markets. Those publications can be divided into two groups. One group describes the current condition on the housing market and the most important indicator is the Housing Starts publication. The second group, describing what can we expect in the upcoming months or years, include the Building Permits publication.
Housing Starts
This report is published by the Census Bureau. It tracks the annualized number of new residential buildings that began construction during the previous month. As with existing and new home sales, an increasing trend has a positive effect on the economy and the nation’s currency. Also, the equities markets react positively since a higher reading signals better results of construction companies and a better situation on the labor market. A higher value of real estate investments signals a better financial condition of the American society and it increases as the economy grows.
The Housing Starts report is published in the middle of the month at 14:30 ET.
Building Permits
This report is published along with the data regarding new construction investments and it can be treated as an indicator of future trends on the housing market. The index measures the annualized number of new residential building permits issued during the previous month. A rising trend has a positive effect on the nation's currency because obtaining a permit is one of the first steps in the home construction process. Permits therefore act as a leading indicator for the housing market. At the same time, the validity and importance of this indicator is questioned by the fact that some of the states in the US do not require permits to start building a house. Also, awarding a building permit does not mean that the construction will actually take place.
The Building Permit report is published in the middle of the month at 14:30 ET.
The housing market is only one of the sectors of the economy. Besides it, there are plenty of publications describing what is happening with the whole economy. I will present those indicators in the next chapter.
Feel free to contact me with any question or comments.
Adam Narczewski
X-Trade Brokers Dom Maklerski S.A.
adam.narczewski@xtb.pl