Existing Home Sales Face 2 Major Headwinds in the US

Europe’s Consumer Confidence Rises while China’s Manufacturing Falls (Part 1 of 3)

Existing US home sales edge up in February

Consumer confidence in the Eurozone reached an eight-year high, while China’s manufacturing sector dipped to its 11-month low. The Europe-tracking iShares MSCI EAFE (EFA) gained about 50 basis points, while the China-tracking iShares China Large-Cap (FXI) dipped by 0.32%. Meanwhile, an important housing sector indicator also came out in the US on March 23.

In the US, the National Association of Realtors released its existing home sales figures for February. There was some good news for the housing sector along with investors in the real estate sector—such as those invested in the iShares Dow Jones US Real Estate Index ETF (IYR). Existing home sale in the US (SPY)(IVV) recorded a 4.88 million annualized figure in February versus the 4.82 million recorded in January. The figure, however, came in below median expectations of 4.94 million units. Indicator releases pertaining to the housing market are particularly anticipated by REITs (real estate investment trusts) such as Host Hotels Resorts (HST), General Growth Properties (GGP), and The Macerich Company (MAC).

Home sales face two major headwinds in the US

Taking a look at the trend over the past few months, we see that growth in existing home sales in the US has slowed, especially post–September 2014. On average, existing home sales have met with lackluster demand post-recession. There are two major headwinds to the US housing market’s growth:

1. rising home prices
2. limited supply

The US economy saw investor confidence plummet in its housing market in the wake of the 2009 housing bubble. Investors have yet to establish a good level of confidence in the US housing market. Home prices are still very high, leading to lackluster market demand. Though the rising prices bode well for homeowners, they challenge affordability for prospective homebuyers.

On the supply side, homebuilding hasn’t really picked up at a good pace since the recession. A part of the slowdown in recent months is due to the winter, which hinders construction.

While US real estate investors remain watchful of their holdings, investors in the Eurozone had a definite reason to be happy on March 23. Let’s take a look.

Continue to Part 2

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