MARKET ANALYSIS
HOUSING
Overview
The housing market is a vital economic sector that influences and reflects broader economic trends. It impacts household wealth, consumer confidence, and economic stability. Housing market health is a strong indicator of economic conditions and can drive economic cycles of expansion and contraction.
Key Metrics
- Housing Starts: The number of new residential construction projects begun in a given period. Indicates future supply in the housing market.
- Building Permits: Approvals issued by local governments to construct new buildings or modify existing structures. Serve as a leading indicator of future construction activity.
- Home Sales: The total number of new and existing homes sold within a certain period. Reflects demand and consumer confidence.
- Property Prices: Changes in home prices indicate market conditions and can influence consumer wealth and spending.
Implications
- Economic Indicator: Strong housing data suggests economic growth and consumer confidence. Conversely, a decline in housing activity can signal economic slowdowns.
- Wealth Effect: Rising home prices increase household wealth, boosting spending and economic activity. Falling prices can reduce wealth and spending.
- Construction Industry Impact: Housing market health directly affects the construction industry and related sectors, including manufacturing and services.
Factors Influencing the Housing Market
- Interest Rates: Lower interest rates reduce mortgage costs, boosting housing demand.
- Economic Conditions: Strong economic growth increases demand for housing.
- Government Policies: Tax incentives, subsidies, and regulations can influence housing market activity.
- Demographics: Population growth and urbanisation trends affect housing demand.
NEW HOME SALES
Country
Type
Housing
Announced
Monthly, around 25 days after the month end
Description
This provides a gauge of not only the demand for housing, but the economic momentum. People have to be feeling pretty comfortable and confident in their own financial position to buy a house.
Furthermore, this narrow piece of data has a powerful multiplier effect through the economy. By tracking new home sales, investors can gain specific investment ideas as well as broad guidance for managing a portfolio.
Each time the construction of a new home begins, it translates to more construction jobs, and income which will be pumped back into the economy. Once the home is sold, it generates revenues for the home builder and the realtor. Refrigerators, washers, dryers and furniture are just a few items new home buyers might purchase.
Thus, trends in the new home sales data carry valuable clues for the stocks of home builders, mortgage lenders and home furnishings companies – and therefore this indicator can be helpful to those investors interested in placing a financial spread bet on these particular types of companies.
EXISTING HOME SALES
Country
Type
Housing
Announced
Monthly, around 20 days after the month end
Description
The construction industry provides information on construction output and activity. This figure represents the annualised number of existing single-family home sales over a one-month period and is released monthly by the U.S National Association of Realtors.
It does not take into account newly built houses and can be viewed as a lagging indicator as it tends to react after a change in mortgage rates. However, it is thought to be a good measure of demand in the real-estate sector.
HOUSING STARTS
Country
Type
Housing
Announced
Monthly, around 17 days after the month end
Description The construction industry provides information on construction output and activity. Such information gives an insight into the supply on the housing and construction market.
Rising numbers of new construction starts or value of construction completed reflects higher consumer and business optimism.
Expanding construction indicates growth in the housing market and predicts an increase in the overall economy.
However, an excessive supply of new buildings may result in a drop in housing prices. The construction industry is one of the first to go into a recession when the economy declines but also to recover as conditions improve.
HOUSE PRICE INDEX
Country
Type
Housing
Announced
Monthly
Description
There are a number of house price indices produced monthly in the UK.
The Halifax House Price Index is the UK's longest running monthly house price series with data covering the whole country going back to January 1983. The Index is based on the largest monthly sample of mortgage data, typically covering around 15,000 house purchases per month, and covers the whole calendar month. From this data, a "standardised" house price is calculated and property price movements on a like-for-like basis are analysed over time.
Nationwide uses a statistical method, which simulates the ideal procedure. This allows Nationwide to use the constantly varying sample of mortgage approvals to produce a consistent index. Any changes are simply due to price fluctuations and not due to changes in the balance of the sample. For example, an increase in the proportion of flats and small houses could produce a fall in the simple average price, although the price of every property in the sample might actually have increased.
The area of land included with the property is felt to be unimportant when valuing a property. Large acreages of garden land have surprisingly low intrinsic value unless planning permission is available for further development.
Rightmove is the UK’s earliest report on housing but tends to produce a minimal impact because seller’s asking prices and the actual sell price are not always correlated.
The figure is compiled from sellers’ asking prices of properties as they come onto the market via Rightmove’s member estate agents which it claims covers over 90% of the market. Therefore the figure is perceived to be in a good position to identify any immediate changes in the market. The index is not adjusted to seasonal changes.
MORTGAGE APPROVALS
Country
Type
Housing
Announced
Monthly, around 24 days after the month end
Description
The number of mortgages approved monthly by members of the British Bankers Association. The figure shows the turnover effect happening in the sector.
This is considered to be a leading indicator of the state of the housing market in the UK with a rising number of approvals indicating a growing or healthy housing market with a declining number detailing the opposing effect.
