Existing Home Sales Rise 4.57M, Less than Expected
Existing Home Sales measures the change of existing residential buildings that were sold during the previous month. This report helps to gauge the strength of the U.S. housing market and is a strong indicator of overall economic strength. The Survey states that 4.57 million existing residential buildings were sold in January, however, this is lower/higher than the 4.67 million expected by analysts. This is essentially bullish/bearish for the U.S. housing market.
From the report, Existing-home sales rose in January, marking three gains in the past four months, while inventories continued to improve, according to the National Association of Realtors.
Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, increased 4.3 percent to a seasonally adjusted annual rate of 4.57 million in January from a downwardly revised 4.38 million-unit pace in December and are 0.7 percent above a spike to 4.54 million in January 2011.
Lawrence Yun, NAR chief economist, said strong gains in contract activity in recent months show buyers are responding to very favorable market conditions. “The uptrend in home sales is in line with all of the underlying fundamentals – pent-up household formation, record-low mortgage interest rates, bargain home prices, sustained job creation and rising rents.”
An increase in existing homes sold implies a healthy housing market, and because of the multiplier effect, housing has an impact on the rest of the economy. Increases in homes sold suggest increased household income and in turn an economic expansion, and visa versa.
The National Association of Realtors is the national association representing the real estate finance industry which compiles this information.
Traders who believe that a beat in Existing Home Sales is positive for the economy, you might want to consider the following trades:
- Long building companies like PulteGroup (NYSE: PHM) because more houses being sold increases demand in more homes and as a result means more demand for home builders.
- Long companies like Louisiana-Pacific (NYSE: LPX), who manufacture and distribute products and materials for home construction.
Traders who do not believe that the Survey is a leading indicator for the general housing market, you may consider alternative positions:
- Short building companies like KB Home (NYSE: KBH) because fewer mortgage application and home sales in turn means less demand for housing and home-builders.
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