There is no investment thesis for this article, as its focus is purely on economic data. However, as economist Edward Leamer observed, housing is the business cycle, meaning that a healthy housing sector is an indication of a growing economy.
Let’s start with the cost of funds:
Earlier this year, the Fed lowered rates to 25 basis points. Mortgage rates – which are tied to the treasury market – followed suit. 15-year (left) and 30-year (right) mortgage rates are now at their lowest levels in five years.
This has supported demand. New home sales continue to grow:
Sales of new single-family houses in September 2020 were at a seasonally adjusted annual rate of 959,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 3.5 percent (±19.9 percent)* below the revised August rate of 994,000, but is 32.1 percent (±28.8 percent) above the September 2019 estimate of 726,000.
Here’s a chart of the data:
While they decreased M/M, they are still up Y/Y.
Sales growth is regionalized:
Sales in the Northeast (upper left) have dropped back to their pre-pandemic levels. Midwest sales (upper right) have returned to the upper range of their pre-pandemic activity. Sales in the South (lower left) and West (lower right) are near five-year highs.
Existing home sales – which account for about 90% of the housing market – are still growing at a strong rate:
Existing-home sales grew for the fourth consecutive month in September to a seasonally-adjusted annual rate of 6.54 million – up 9.4% from the prior month and nearly 21% from one year ago.
Here’s a chart of the data:
Existing home sales are now at their highest level in a year.
In comparison to new home sales (see above), all US regions are witnessing strong existing home sales growth:
Sales in the Northeast (upper left), Midwest (upper right), South (lower left) and West (lower right) are all at 1-year highs.
Increased activity has dented supply:
The inventory of new homes (left) is near a 5-year low, while total existing homes for sale (right) are at a 1-year low.
Low inventory and strong demand cause rising prices:
The pace of price increases is increasing.
Finally, homebuilders are bullish:
In a strong signal that housing is leading the economic recovery, builder confidence in the market for newly-built single-family homes increased five points to hit an all-time high of 83 in September, according to the latest NAHB/Wells Fargo Housing Market Index (HMI) released today. The previous highest reading of 78 in the 35-year history of the series was set last month and also matched in December 1998.
All of this data is the main reason the NAHB’s Housing Market Index is at 9-year high:
Expect this trend to continue largely due to the low cost of credit. While activity may slow, it’s doubtful that it will drop meaningfully.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.