The housing market in the United States is one of the most important indicators of economic health in the country. It comes as no surprise that traders around the world closely watch the evolution of the housing market to mark cyclical turns in the United States business cycle.
For this reason, there is no other housing market in the world that traders and investors are so keen to understand. The economic calendar is full of data showing the sector’s evolution, with New Home Sales one of the key releases.
May 2020 New Home Sales Data Beating Expectations
Yesterday we saw the data for last month, and it beat expectations on all metrics – 676k homes sold on an adjusted annual rate, 16.6% above April, and 12.5% above May 2019. As this number is adjusted with the annual rate, it is important to remember how it is calculated – monthly figure times twelve.
For the houses sold in May 2020, the median sale price was $317,900, and the seasonally adjusted estimate of new houses for sale at the end of the month shows a supply of 5.6 months at the current sales rate.
The rising home sales number reflects the market’s resilience and the population taking advantage of cheap money that is flooding the economy. As the Fed keeps the monetary policy easy, mortgage rates are low, and banks have plenty of capital to lend to the population.
The housing market is a leading indicator because the sale of a house triggers ripple effects for the local economy. Besides the mortgage sold by the financing bank, brokers earn a fee for the transaction (e.g., real estate agents), new furniture and appliances are sold, and so on.
Investors are familiar with the critical role that the housing market in the United States has in the overall economy as the 2008-2009 Great Financial Crisis originated from this market. Once it affected the United States economy, the effects on the world’s financial system affected nations that did not imagine they were linked to the American housing market in any way.
New Home Sales is only one indicator out of many that reflect the state of the US housing market. Pending Home Sales or Building Permits complete the picture of one of the most interesting sectors of economic activity in America.
If they confirm this week’s New Home Sales positive data, the US economy will turn a corner earlier than previously thought.