The U.S. housing market is one of the most talked about sectors of the economy, and for good reason.
Healthy demand for housing is a strong indicator that the economy has underlying strength and that consumers feel confident in the economic outlook. Buying a home is one of the biggest financial commitments an individual can make, so if people are willing to buy or build a home, it says a lot about consumer confidence.
While the Federal Reserve’s (Feds) policy is largely centred on inflation expectations and the rate of job creation, activity in the housing market also plays a key role in the central bank’s assessment of economic health. At the same time, the housing market is particularly sensitive to mortgage rates and an increase or decrease in the federal funds rate will have a direct impact on consumer borrowing costs.
Traders monitor a number of monthly housing-related data releases with the focus primarily on Housing Starts, New Home Sales, Pending Home Sales and existing home sales, as well as the Weekly Mortgage Application Report, which is released every Wednesday.
Quarterly earnings for home improvement chains are also heavily impacted by the short- to medium-term outlook in housing. It is important for a trader to survey a broad range of surveys and indicators since certain data releases are better at helping to establish a forward-looking view of the housing market while others may be more suitable to analyse its current state.
The Fed’s monetary policy can be influenced by positive or negative moves in the housing market. A large increase or decrease in home sales can have direct implications for U.S. monetary policy, creating valuable opportunities for traders to capitalize on changing expectations in the housing sector.
There are a number of factors to think about when trading U.S. housing data but with a little insight and thorough preparation these releases can offer numerous opportunities for traders.