Housing Shows Strength, Even With More Bad Economic News Today

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Housing Shows Strength, Even With More Bad Economic News Today

More bad economic news is expected today, but the real story could a rebound in the housing market.

Mortgage data for the last four weeks have shown strong demand for home buying. Refinancing normally dominates lending, but now they’ve swung sharply toward purchases. (According to the Mortgage Bankers Association.)

Two other reports for April also surprised to the upside lately:

  • Existing home sales fell to a 4.33 million annualized pace on May 21, about 30,000 more than economists expected.
  • New home sales rose 1 percent on May 26. That crushed forecasts for a 22 percent drop.

Those strong numbers come after millions of Americans spent weeks trapped at home because of coronavirus. Many of them are younger adults (“millennials”) in city apartments who are finally interested in moving to the suburbs. They can also borrow with mortgage rates at record lows below 3.5 percent, thanks to the Federal Reserve.

iShares Home Construction ETF (ITB), daily chart, with 50- and 200-day moving averages.
iShares Home Construction ETF (ITB), daily chart, with 50- and 200-day moving averages.

Jobless Claims, GDP

Many parts of the economy are struggling badly. We’ll learn more from these three reports at 8:30 a.m. ET today:

  • Initial jobless claims are the most up to date because they cover last week. This number, which shows how many people applied for unemployment insurance, has been spiking because of coronavirus. Economists are looking for about 2.1 million new claims.
  • Durable-goods orders cover April. These encompass everything from cranes to refrigerators and airplanes. Durable goods are a good economic barometer because they reflect both income and business plans. Orders are expected to fall 19 percent, following March’s 14 percent crash.
  • First-quarter gross domestic product (GDP) is the least current because it covers January, February and March. Forecasts are running at negative 4.8 percent.

America Reopens

Top Performing Industry ETFs in Last Month
iShares Home Construction (ITB)+34%
Market Vector Oil Services (OIH)+27%
US Global Jets (JETS)+19%
Invesco Solar Energy (TAN)+17%
SPDR S&P Metals (XME)+15%

A second wave of coronavirus is “not inevitable,” Dr. Anthony Fauci said this week. He also endorsed lifting social-distancing rules. That was a much more positive message from the government’s top disease expert than earlier in May.

The increased confidence follows Memorial Day, typically the start of summer in the U.S. It also comes as the New York Stock Exchange reopens its floor and Goldman Sachs (GS) brings traders back to lower Manhattan. Consumer confidence on Tuesday also beat expectations as Americans looked for the situation to keep improving.

Getting back to housing, did you know that residential-construction jobs reached a 12-year high before coronavirus? The Labor Department counted about 840,000 workers in February and March, the most since May 2008. (This number plunged in April, along with everything else.)

Finally, Case-Shiller’s March home-price index accelerated to 4.4 percent. That data is relatively old, but it shows momentum before the crisis.

Select Housing Stocks, 1-Month Returns
Realogy (RLGY) +74%
LGI Homes (LGIH) +68%
Taylor Morrison Home (TMHC)+64%
KB Home (KBH) +50%
TopBuild (BLD)+45%

In conclusion, housing was strong before the pandemic hit and it may be rebounding already. This part of the economy has been ignored for the last decade. But now it could lead us out of recession as the lockdowns end.

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