A Sign Of A Weakening Housing Market

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What's going on?

The building of new homes in the US declined in January showing that housing – a sector thathad been booming – may be slowing down.

What does this mean?

US “housing starts”, which means the number of new homes on which construction has just begun, fell almost 4% in December (from January). It had also fallen in December versus November. So far, it’s unclear whether this slowdown will continue or if it’s just a blip before construction picks up. The factors that boosted housing in recent years remain in place: low unemployment, rising wages (versus falling inflation) and low mortgage rates. There is also, apparently, pent up demand for homes – at least in certain areas (e.g. urban living). It’s important to remember that this data is, so far, just reflective of slowing momentum – not a total crash in demand for new homes.

Why should I care?

The bigger picture: Housing is very important to the economy. It creates lots of construction jobs and leads to consumer spending (on things like furniture and household appliances). Although not reflected in this data, rising house prices are also, typically, good for the economy as it creates a wealth effect that cascades into other purchases (e.g. retired people might sell their homes to free up cash to fund their lifestyles).

For stocks: Lots of types of stocks are affected by housing. Homebuilders, like D.R. Horton and Lennar, are the most obvious. Home improvement companies like Lowe’s and Home Depot also tend to be closely related to the housing market (e.g. home improvement retailers who sell to people and contractors who spruce up existing homes and build new ones). Whether or not housing picks up will likely have a material impact on these stocks.

Originally posted as part of the Finimize daily email.

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