The U.S. Housing Market – Economic Indicators to Interpret

Hello there, this is and this video deals with the US housing market, so we are still on the fundamental analysis. The housing sector in the US is one of the most important in the world. In fact, the housing sector is really important for every economy. This is one of the reasons why most PMIs also include the construction component.

Housing Market – Overview

If there is one event to turn to, this is the 2008-2009 Great Financial Crisis that started from the housing market in the United States. It quickly spread from the United States triggering a global recession and unfortunately many people lost their job – and it all started from the housing market.

For the currency market, the housing sector is very important but the housing sector in the United States is critical. There is no other economy that releases so much information about the housing market like the United States.

For example, if you try to search for the housing sector in Germany, France or Japan, you will have a hard time finding indicators for it. But these indicators, Existing Home Sales, Pending Home Sales, Building Permits, are part of the economic calendar that any trader must use.

Indicators Any Trader Must Use

The first one is the most important one – it shows the number of homes sales each month and depending on this number you may tell if an economy is recovering or is still contracting. Imagine that you buy a house.

Most people after buying a house they paint it, buy new furniture, contract new services, like a gardener, and so on. In other words, the housing industry triggers on the horizontal demand for goods and services for the local services.

Therefore, if you see an increase in the number of existing home sales, then the economy is likely to pick up. The National Association of Realtors is the one releasing the indicator and last month the indicator increased by 24.7% when compared to the previous month. If you click this link, more details appear.

What’s very important is the seasonal adjusted annual rate. This is the seasonal adjusted annual rate – the number of houses sold in the United States. Here there is the coronavirus pandemic in March and the dip that it triggered, and then a quick bounce – a V-shape recovery.

Why did the sales dipped in the first place and then bounced back? The bounce came because the Federal Reserve of the United States slashed the interest rates, making it easier for banks to sell mortgages and people used the opportunity to go and buy a house. More favorable conditions from the Fed created demand for housing and triggered a chain of economic benefits on the local industry.

The report goes into various details, but what is important is the number of existing houses sold. This dip and the recovery show the response that the Fed delivered.

Another important indicator is the Pending Home Sales. This is only pending, showing an incomplete sale. Maybe there is already a down payment, a precontract already signed, but effectively the house is not sold yet.

Building Permits give you an idea about the new houses about to be built. By the moment that a company obtains a building permit, it has a certain deadline to deliver the construction. It means that during that period of time, the company will contract all kind of goods and services in the area to build the house or the residential complex. Therefore, the bigger the building permits number, the better for the economic growth in the area.

Sum Up

To sum up, when looking at the housing sector in the United States, consider the Existing Home Sales and building permits as the ones that reflect the strength of the economic activity. The sector employs many people and when a house is sold the new owner usually spends some more in refurbishing and renovating it. It is a leading indicator of economic growth and shows where the economy is on the business cycle and the pending home sales only show the pending transactions. Therefore, out of the three, focus on the existing home sales and the number of building permits.

Thank you for being here. Bye, bye.