Market Leading Housing Sector Has Important News This Week

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Here Come Some Big Numbers for a High Flying Corner of the Market

Will housing stocks continue their epic run? The next few sessions may answer that question.

Statisticians at the Commerce Department release the industry’s most important numbers at 8:30 a.m. ET today: housing starts and building permits. Both have been pushing their highest levels since June 2007, before the notorious crash.

Home Depot’s (HD) quarterly results are the other big item on the agenda. Last quarter the construction-supply giant tried to warn that tariffs would hurt its business. Revenue also missed, but investors optimistic about real estate ignored the negativity drove the stock to record highs.

After all, the broader fundamentals keep getting better. Consider these various reports since the summer:

  • September 9: Real-estate website Zillow predicted the U.S. will have a housing shortage until at least 2022.
  • September 23: Mortgage analysts at CoreLogic estimated that Americans’ equity in their homes rose 5 percent in the previous year. Fewer than 4 percent of mortgages are now underwater.
  • October 15: Realtor.com said inventories are falling more quickly again after increasing for 1-1/2 years.
Philadelphia Housing Sector Index ($HGX), weekly chart, with relative strength indicator.
Philadelphia Housing Sector Index ($HGX), weekly chart, with relative strength indicator.

A combination of steady job growth and underbuilding after the 2008 subprime crisis is the main cause for the rebound. Then it got an extra boost when interest rates collapsed, lowering the average 30-year mortgage from almost 5 percent a year ago to 3.5 percent in early September. That translates into about $330 less in monthly payments on a $400,000 loan.

Lowe’s, Existing Home Sales Follow

HD’s smaller rival, Lowe’s (LOW), follows with its quarterly results tomorrow morning. Then on Thursday, existing-home sales are due.

Aside from HD and LOW, most other companies in the sector have had strong results. D.R. Horton (DHI), for instance, gapped to new highs last week after the country’s biggest builder predicted better-than-expected sales in 2020. Lennar (LEN) and KB Home (KBH) also beat estimates in early October.

Household formation is the other big catalyst driving the housing market. While the financial crisis definitely held back millennials, they’re still the biggest generation in U.S. And they’ve already entered the key age bracket over 30 years when people generally buy homes. Most data shows that slowly, but surely, they’re following earlier trends.

That could make housing a hot topic as December approaches. Interest rates and supply are both low. Meanwhile demand is not only rising, it’s also backed by stronger finances thanks to a healthy job market and years of cautious lending. Will 2020 be the year Americans get excited about home again? We may have a better idea by the end of this week.

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