Housing announcements report on how healthy the housing sector of the economy is. Because such a large amount of the average person’s net worth is tied up in the value of her home, the health of the housing market tends to have a dramatic effect on consumer confidence and the strength of the economy. A strong housing market typically leads to a strong economy.
Housing data are released in multiple announcements that you need to be aware of:
- Housing starts and building permits: Measurement of the number of building permits that have been issued and the number of planned homes that have actually been started.
- Existing home sales: Measurement of the number of homes that have been lived in before that have been sold.
- New home sales: Measurement of the number of homes that have never been lived in before that have been sold.
- Standard & Poor’s/Case-Shiller Home Price Indices: Measurement of home values.
Impact on Trade Flows
Increasing Housing Prices/Activity –> Increasing Consumer Confidence –> Increasing Refinancing –> Increasing Consumer Spending Increased Demand for Imports –> Increase in Trade Flows
Decreasing Housing Prices/Activity –>Decreasing Consumer Confidence Decreasing Refinancing -> Decreasing Consumer Spending –> Decreased Demand for Imports –> Decrease in Trade Flows
Impact on Investment Flows
Increasing Housing Prices/Activity –>Increasing Consumer Confidence –> Increasing Refinancing –> Increasing Consumer Spending –> Increase in Corporate Profits –> Rising, More Attractive Stock Market –> Increase in Investment Flows
Increasing Housing Prices/Activity –>Increasing Consumer Confidence –> Increasing Refinancing –> Increasing Consumer Spending —> Rising Inflation –> Central Bank Raising Interest Rates —> More Attractive Government Debt Market –> Increase in Investment Flows
Decreasing Housing Prices/Activity –> Decreasing Consumer Confidence Decreasing Refinancing –> Decreasing Consumer Spending–> Decline in Coiporate Profits –> Falling, Less Attractive Stock Market –> Decrease in Investment Flows
Decreasing Housing Prices/Activity –> Decreasing Consumer Confidence –> Decreasing Refinancing Decreasing Consumer Spending Falling Inflation –> Central Bank Lowering Interest Rates –> Less Attractive Government Debt Market–> Decrease in Investment Flows
Impact on Money Supply
Increasing Housing Prices/Activity —> Increasing Consumer Confidence –> Increasing Refinancing –> Increasing Consumer Spending –> Rising Inflation Central Bank Raising Interest Rates –> Decrease in the Money Supply
Decreasing Housing Prices/Activity –> Decreasing Consumer Confidence –> Decreasing Refinancing –> Decreasing Consumer Spending –> Falling Inflation –> Central Bank Lowering Interest Rates –> Increase in the Money Supply
Impact on Investor Fear
Increasing Housing Prices/Activity —> Confident Investors
Decreasing Housing Prices/Activity —> Nervous Investors
Typical Impact on the Currency
Increasing Housing Prices/Activity —> Stronger Currency
Decreasing Housing Prices/Activity —> Weaker Currency
