Pending home sales are critical for Lowe’s and similar retailers

Why this might be 2014’s most pivotal week for financial releases (Part 3 of 7)

(Continued from Part 2)

The Pending Home Sales Index (or PHSI)

The Pending Home Sales Index (or PHSI) is issued by the National Association of Realtors. The PHSI reading for March will be released on Monday, April 28. The Pending Home Sales Index (or PHSI) is a forward-looking indicator whose headline index reading is based solely on contract signings.


Key highlights from February’s report

  • The PHSI declined 0.8% month-on-month and 10.5% year-on-year in February 2014. The reading, at 93.9, was also the lowest recorded since October 2011.
  • According to the NAR, rising home prices and adverse weather had played a role in the decline.
  • The pace of contract signing, however, hadn’t been affected.

Outlook for March

Pending home sales are unlikely to show any great shift from the current trend. Consumption has been unable to gain traction due to the slow labor market recovery and the effects of the harsh winter. Besides, inventory levels for homes are taking time to pick up, which is dragging on demand. Existing home sales figures for March have been disappointing too, declining 7.5% year-on-year.

What do pending home sales mean for investors?

An uptick in pending home sales would mean consumers have confidence in the economy and in their personal prospects. Housing indicators, besides being one of the strongest gauges of consumer confidence, also have multiplier effects throughout the economy, impacting home improvement retailers like Lowe’s (LOW) and Home Depot (HD). Both Lowe’s (LOW) and Home Depot (HD) are part of the SP 100 Index (OEF).

An uptick in housing indicators also means that since the economy is gaining traction, the Fed is likely to raise the Fed funds rate sooner rather than later. Currently, analysts estimate that the Fed would raise the rate sometime between Q2 and Q4 2015. An increase in the Fed funds rate would raise rates in U.S. fixed income markets. Investors can benefit from rising rates by investing in floating-rate ETFs like the iShares Floating Rate Bond (FLOT) and the Market Vectors Investment Grade Floating Rate ETF (FLTR).

To find out about another indicator in a sector that shows strong growth and economic revival, please read on to Part 5 of this series.

Continue to Part 4

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