Housing Market Signs of Growth

8.4.2016| Housing Market Signs of Growth – Rusty Tweed team

Home Prices Have Hit a Record High

The housing market is one of the only areas of the economy that is doing remarkably well right now.

Many big retailers are facing challenging times, Macy’s and Target among them. Wage growth remains slow. The stock market’s volatility continues. The recent growth in oil prices could further impact on consumer spending.

Housing Market Signs of Growth - Rusty Tweed team

However, home prices have hit a record high. New home sales have reached their highest level since before the 2008 crash.

Big homebuilders KB Home (KBH) and Pulte (PHM) saw their stocks rise as home sales have rallied.

Shares in Zillow, the home price tracker on the web, have also increased by over 20% this year.

Other Key Indicators of Growth in the Housing Market

A further sign of housing strength is the fact that DIY stores such as Lowe’s (LOW) and Home Depot (HD) have also recently reported strong earnings. Few other retailers have much cause for celebration. Although as a result of the housing market rebound, other retail sales may also see a boost, according to Brinker Capital senior investment manager, Thomas Williams.

Williams said, “There is a trickle-up effect. More first-time buyers are entering the market, which makes it easier for people to sell”.

There are already fears that the latest housing bubble could lead to a similar one we saw in the mid 2000s that was a key cause of the subprime mortgage crisis and consequent recession.

Manager of the Hodges Small Cap fund said, “Normal recessions are caused by excess somewhere in the financial system.”

However, that level of excess is not apparent in the housing market. In fact, some areas of the country are still trying to make a comeback from the 2008 downturn.

It’s also worth stating that the cause of the most recent recession rarely causes the next one. The recession prior to 2008 was largely a result of a tech bubble in 2000 — not excess in the housing market.

Housing weakness in some markets has gotten worse because of the huge pullback in oil price. But if the recovery in the energy markets last, then home sales in states like Texas, Louisiana and North Dakota could also recover.

If the Federal Reserve raises interest rates,  that may also prompt prospective homebuyers to take action quickly before mortgage rates climb too much.

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