Macroeconomic indicators. Sales of housing.
Real estate is an important part of life of any person in any country. Many people spend about half their income on housing. This includes the improvement of housing conditions and the cost of new furniture, appliances, etc. Apart from personal interests, real estate transaction is one of the most profitable business areas.
By selling and buying real estate in the country can be judged on the state of the economy as a whole.
The real estate market has two components: the primary and secondary real estate market.
In the primary market real estate as a commodity acts for the first time. The main sellers in this case are the state or construction companies – suppliers of residential and non-residential real estate. In the secondary market the real estate acts as the goods which earlier were in the use and belong to the certain owner – physical or legal person.
If indicators show growth, it positively influences dynamics of the American currency as it testifies to economic development. Conversely, a decline in the housing market indicates a decline in personal income or that investors prefer to hold on to their money, which indicates an uncertain or weak economic situation, putting pressure on the U.S. dollar.
New home sales. The indicator tracks the sales of new single-family houses in the U.S. and is considered a fairly timely indicator of real estate market cases, as it is registered at the time of signing the agreement of intent. Cases of subsequent refusal are quite rare, so usually they are not statistically significant.
Sales of new houses stimulate huge investments, create jobs, increase costs and increase production. Contractors take out construction loans, purchase construction materials and hire workers. Then the person who bought the house starts to invest in the repair and improvement of housing. All this warms up the economy.
As soon as the level of house buying starts to fall steadily, the alarm should be sounded in many sectors of the economy. Banks are reducing the size of construction loans for fear of default by developers. Investments in construction are being cut, workers are being laid off. Suddenly on the horizon there is a danger of a decline in economic activity.
Existing house sales on the secondary market. Represents the number of used houses and condominiums, the sales of which were completed in the reporting month. The corresponding transactions occupy the major part of the real estate market activity.
Although nothing new is created in the process of such transactions, as a rule, households spend considerable funds on furniture and repair of newly purchased housing, which is positive for the economy. Sales on the secondary housing market are inseparably linked to the level of mortgage loan rates. However, the positive reaction to the rate reduction follows with some lag in a couple of months.
The indicator is monitored so closely, because more than 80% of real estate transactions are related to secondary housing. The level of sales in the secondary market is highly dependent on the season – in winter it decreases, and in summer it increases. Therefore, the indicator of the current year is usually compared with last year, or the current month with the same month last year.
Pending home sales index – data is based on monthly changes in the number of signed contracts on real estate in the secondary housing market. The number of contracts is not included in the sales index before the end of the transaction. As a rule, the transaction is closed within 4-6 weeks.
The simple words of the PHSI can be described as follows: there are the number of contracts for the sale of housing, which are not considered as a completed transaction, and there is already a completed sale when payment is received. That is, knowing the number of contracts, you can predict growth or decline in home sales. The index does not include in these new construction. In fact, we are dealing with an index, or rather its percentage change relative to the previous month.
Growth in sales indicates an improvement in the financial situation and increased confidence of consumers. Even not being a production, house sales provide realtors with profit and are an indicator of personal expenses and retail sales, as people will make purchases for home improvement.
Sales in the housing market reflect the general state of demand for large housing purchases among households. It is also considered by many as a strong and even leading indicator for the entire economy. And for investors, a strong economy and rising consumption is a signal for investment in this country.