Home sales is considered one of the economy’s leading economic indicators. Jointly published by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development every month, the report measures the sales of new single-family houses in the United States. Several factors that are included in this report are: the number of houses sold, the number of houses on the market, the median and average new-home sales price, a chart depicting yearly sales trends, and whether sales have met, exceeded, or fallen short of expectations from economists.
Importance and Impact
The housing market accounts for about 15 percent of the country’s GDP and 25 percent of household net worth. Buying a home is a major purchase for most people and it is important to understand the significance of home sales through some economic factors: household income, interest rates, and unemployment rates.
Household income contributes to housing demand because when income rises, so does demand due to more disposable income. People become discouraged when interest rates increase and hold off taking on mortgages. We are starting to see that happening right now in the United States due to the increase of interest rates from the Fed. A high unemployment rate, which means lower earnings in the future, could lead to reduced demand for housing. When viewing new-home sales reports, if it exceeds expectations, it is an indication that the economy is strong. If it is lower than expectations, it is taken as there will be an economic slowdown.
New Homes vs. Existing Homes
Home sales can be differentiated into two categories: new homes and existing homes. New-home sales are recorded upon completion of the sales contract and acceptance of a deposit by the Census Bureau. These sales can be recorded at any stage of the construction of the home, which is not yet started, under construction, or completed.
Existing-home sales, however, are recorded by the National Association of Realtors. These homes are not new, and they are considered sold when the closing process is completed, which takes 30 to 60 days.
Stock Market and New-Home Sales
Researchers have tried comparing the monthly gains in the stock market with housing data. What was found was that there is no direct relation between housing prices and gains in the market. However, some have argued that home buying is evidence of a phenomenon known as the “Wealth Effect.” What this means is that people will spend more money when they believe the value of what they own is rising. If financial assets are increasing, they could feel more apt to making a larger purchase like a house.
First State Investment Advisors has over 50 years of experience studying home sales reports. For a free consultation, call us today at (918) 492-1361.
This overview is for informational purposes only and is not a recommendation. It should not be the sole deciding factor in making an investment. Investing is a risk and, as with all risks, a positive return is not guaranteed. Past performance does not indicate future results.