Last month, I talked about how the U.S. has been seeing solid improvements in its housing market lately. And no, it ain’t a fluke.
As I mentioned before, housing starts have been climbing at a slow and steady pace for over a year. Just last month, it recorded an annual rate of 746,000, which is just off the three-year high of 754,000 that it registered in June. Awesome, right? But that’s not all.
Apparently, other housing market indicators are telling the same upbeat story. Building permits rose to a four-year high last month, rising from an annual rate of about 760,000 to 810,000.
Also, people have been buying up brand spanking new cribs at a solid pace, as we saw from new home sales last month. New home sales rose to match a two-year high as it surged by 3.6% in July, moving up from an annual pace of 359,000 to 372,000.
Sure these numbers are encouraging, but are they enough to determine a trend? Taken alone, probably not. As I’ve said countless times, “One month does not make a trend.” But once you consider that sales of new homes are already up 25% from a year before, it’s hard to deny that the industry is making serious headway in its recovery.
Investors have been eyeing the housing market hotly because many believe it was the root of the 2008 financial crisis. So it’s really nice to see that it’s finally showing signs of a sustainable recovery.
But why is this important to the economy in the first place? Well for one, it reflects household confidence. The rising demand for homes, which are huge investments, shows that Americans are becoming more confident in their financial situations.
Another reason why many have been so delighted to see improvements in the housing sector is because it usually has a positive spillover effect on other aspects of the economy.
Demand for housing encourages construction activity, which in turn promotes hiring. Also, because people tend to buy new things to furnish their new homes, growth in the housing sector tends to positively affect consumer spending.
All in all, the recent improvements in the housing market serve as another good reason for the Fed to hold back on QE3. And truth be told, it’s one of the many reasons why many (including FOMC member Bullard) believe the recently released dovish FOMC meeting minutes are a bit stale… so don’t bet the farm on QE3 happening just yet!