Later today and tomorrow we have the release of two important housing statistics. These give us some insight into consumer demand and the economic health of the US. Previous housing data had been distorted by the US government shutdown. So this will be our first look at the unaffected and up-to-date data.
Considering that US mortgage delinquencies remain above credit cards, it’s a sector of the economy that still hasn’t fully recovered from the last recession.
It’s also vulnerable to the effects of the interest rate policy that has widely been credited with sapping US economic growth. Now that the Fed has taken on a softer tone regarding future rates, has this influenced the housing market? And what does it mean for currencies?
Existing Home Sales
Later today at 16:00 CET (or 10:00 EST) we have the release of existing home sales and change over the prior month. Expectations are for home sales to significantly draw back on the pace of growth after there was a massive spike in existing home sales recorded last month. This is, again, due to the government shut down, marking 0.2% growth over the prior month. This would imply 5.07M home sales during March, a return to an upward trend after a nearly year-long slide.
Last year, analysts were concerned that the US was heading towards another housing crisis. This was because of the rising housing inventories which climbed to as high as 7.6M in the latter part of the year. This would put the housing market on track towards the bubble that led to the subprime crisis. But so far, this year, inventories have been decreasing back to 6.5M in the latest report. This is despite increasing construction as reported by the major housing firms.
New Home Sales
Tomorrow also at 16:00 CET (or 10:00 EST) we have New Home Sales data. We can also expect these to retreat somewhat. The consensus is for this item to drop by 1.7% last month, which would bring the total to 658K homes from the 667K registered prior. As mentioned, new home sales have been increasing since the beginning of the year.
Next week have the first quarter reports from the largest US homebuilders. Expectations are for these to report a positive start to the year and be on the way to increase production by ~7%. A cut in their forecasts can also be a telling sign for the US economy.
The New and Existing Differential
As a general rule, some insight into US consumer patterns can be gained by comparing the new and existing home sales rates. If consumers feel confident about future prospects and have access to capital, they might prefer to buy new (more expensive) homes over existing homes.
Since the home constitutes the largest item on the average American family’s budget, this can translate into increasing inflation, and by extension affect the dollar.
The other factor that influences forex is credit flows from investment. Over 70% of homes are bought with mortgages making it the largest single financial market in the world, with long credit spans as the standard mortgage credit is 30 years. Since the Fed announced a stay in interest rate hikes, mortgage rates have continued to trickle down, showing there is little issue with liquidity.