What's going on here?
The red-hot housing market in the US continued to sizzle! Data on new home sales in the US and financial results from one of America’s biggest homebuilders were released on Tuesday – and they were both much better than expected.
What does this mean?
New home sales (i.e. sales of homes that are newly built) jumped 12% in July versus last month, far outpacing economists’ expectations. In fact, it was the strongest month for new home sales since 2007! It should be noted that this data is historically volatile and prone to revisions, but the point is pretty clear: the housing market is flexing its considerable muscles.
This dynamic is, unsurprisingly, benefitting companies that build homes and sell them to consumers. Toll Brothers, a major homebuilder, reported financial results on Tuesday that showed an almost 20% increase in new orders versus last year.
Why should I care?
For you personally: The environment is ripe for housing – but will that last?
Many homes are bought with borrowed money, i.e. with a mortgage. Low interest rates make it cheaper to pay a mortgage and, thus, as interest rates go down, house prices generally go up (because more affordable mortgages create more demand for houses). Interest rates have been at historically low levels for years – and keep falling – which helps explain the strong housing market (this is happening in much of the world, not just the US). Higher interest rates would likely act as a headwind to house prices.
The bigger picture: People are spending money on their homes.
Over the past few years, retailers have had a tough time as shopping moves online and consumers’ tastes change. But a red-hot housing market has lead people to spend more money on their homes: perhaps they feel they’re “investing” in something that’s going up in value or they’re just moving into a new home and need a TV. For example, the housing market strength probably helped electronics retailer Best Buy report much better-than-expected financial results on Tuesday (sales of appliances, like TVs, were up big time versus last year).