U.S. Housing Market: Sifting Through the Noise
The housing industry is one of the most important parts of the American economy and makes up roughly 18 percent of the entire Gross Domestic Product. It’s no wonder that market pundits watch the U.S. housing reports with nearly as much intensity as they do the jobs report.
This can get confusing because there are more sources of data for the housing market so picking up a clear trend isn’t always easy. To get an idea what’s going on in this industry, there are a few things you need to keep in mind.
What are the U.S. Housing Reports?
Information on the U.S. housing market comes from both the government and the private sector. Government agencies that release information on the housing market include the U.S. Department of Housing and Urban Development, the Department of Commerce, and the Census Bureau. Private organizations also research the state of the housing market like the National Association of Home Builders and the National Association of Realtors.
These agencies use a mix of surveys and real-life data to get an idea of the strength of the housing market. For data, the agencies look at things like the number of groundbreakings on new homes, applications for new construction properties, and trends in prices. For surveys, the agencies pool workers in the industry like realtors and homebuilders to gauge their confidence in the market.
Finding a Long-Term Trend in a Sea of Data
The problem is that with all these different reports is that can feel like there’s always a headline on the housing market and that’s not always a good thing. It’s hard enough to find a clear long-term trend in the jobs report which comes out once a month. Sorting through housing data is even trickier. Also, it becomes really easy to get locked into a belief about the state of the housing market because you can almost always find data to support your point of view.
Consider the market today: are things looking good or bad for the housing market? The first two quarters of 2014 were weak but things have recently started to pick up. In July, build applications went up 8.1% compared to June and new housing starts were 21.7% higher than July 2013. Builder confidence also went up two points in August. It’s easy to look at this data and see an ongoing recovery. It’s not unreasonable to think that the slow start to the year came from the unusually bad winter which discourages people from buying homes.
At the same time though, there is reason to be concerned about the housing market as well. There is still a large supply of unsold properties, known as inventory overhang. Interest rates are also going up as the Fed winds down QE, making buying home more expensive, while the economy is still not back to full employment. With this viewpoint, the slow start to 2014 might not be a blip but rather a sign of a long-term, weak housing market.
Is the glass half empty or the glass half full? When it comes to the housing market, it can really seem like it’s both ways as you sort through the data. It’s important to keep both viewpoints in mind as follow the news so you and your business will be prepared for either scenario. Businesses with deep exposure to the housing market (think realtors, title companies, mortgage companies) start to feel the pain from housing swings sooner then other businesses. Your ability to make adjustments early is the best way to maintain business value in downswings.