Is the US Housing Market Improving ?

By FX Empire Analyst - Barry Norman
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New-home construction in the U.S. dipped in July, while the number of building permits jumped to the highest level in four years, indicating the industry will keep improving in the second half of the year. Building permits are considered a leading indicator for housing starts.

Starts fell 1.1 percent to a 746,000 annual rate from June’s 754,000 pace, Commerce Department figures showed today in Washington. The median estimate of 79 economists surveyed by Bloomberg News called for 756,000. Building permits, a proxy for future construction, rose to an 812,000 pace, the most since August 2008.

Housing starts estimates in the Bloomberg survey ranged from 730,000 to 800,000. The prior month was revised down from a previously reported 760,000 pace.

Confidence among America's homebuilders shot up to a five-year high in August, thanks in part to a burgeoning recovery in property values across the nation, with builders reporting current prospective sales conditions the best since the housing market tanked.

/Wells Fargo builder sentiment index was released Wednesday, inching up two points in August to 37, up from 35 in July, making Augusts' numbers the fourth consecutive increase and the highest reading since February 2007.

The turnaround in home prices, which saw a more than 2 percent increase last month, has ignited hopes the housing market is finally turning around and has a lot to do with the boost in builder confidence, says Dave Crowe, NAHB's chief economist.

Earlier this month "Freddie Mac" released its July housing reports;

  • The Freddie Mac House Price Index for the U.S. showed a 4.8 percent gain from March to June 2012, the largest quarterly pickup in eight years; the national index posted a June-to-June rise of 1 percent, the largest annual appreciation since November 2006.
  • Rental vacancy rates have fallen to 8.6 percent, the lowest since the second quarter of 2002. The for-sale vacancy rate has dipped to 2.1 percent, the least since the second quarter of 2006. 
  • Nationally, the for-rent market now appears to be in relatively good balance, with the rental stock close to overall rental demand, resulting in "normal" vacancy levels.
  • This continuing shrinkage in excess vacant stock is important because it means that in most markets the REO homes on the for-sale market are not competing with an oversized vacant housing inventory.
  • Even if national indexes dip in the seasonally weak autumn and winter months, the declines probably won't be big enough to erase the good second-quarter news on home values.

Data on the US housing sector will feature prominently this week via two releases on sales activity: existing home sales will be released on August 22 and new home sales will be released on August 23. Scotia is anticipating fairly tepid growth for both, forecasting a half-percentage point rise for each during July. The interesting issue here is that even amidst widespread reports that housing market activity is accelerating, most of the leading indicators for home sales show activity as flat or negative.

Pending home sales fell in June as did the average level of mortgage applications as registered by the Mortgage Bankers Association. The one bright spot in terms of leading indicators for housing sales is that aspects of the NAHB’s housing market index perked up in July.

This week's release of existing home sales and new home sales are expected to tell the story, the eco releases from the past two weeks, including retail sales, consumer confidence, unemployment all point to a more positive recovery of the US economy. If housing data this week's supports this picture, then we will see a fall in the expectations of fed stimulus and more positive sentiment by traders.

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