US housing stocks could be in for a boost if September data due out next week confirms strength that market watchers expect, according to Reuters.
Home buyers returned from summer vacations to lower mortgage rates and increasing rents, and may have moved back into the market after staying away in August. Shares in the sector fell in mid-to-late September after August data missed expectations.
The NAHB (National Association of Homebuilders) housing market index measuring seller sentiment is due out Monday, to be followed during the week by data that includes building permits and housing starts, mortgages, and home prices and sales.
While the PHLX index of housing stocks has risen more than 6.4% so far this year, it has fallen 3.6% in the last month. The index fell 9.9% from Sept. 16 to Sept. 29, the week when August data was released.
Strength in June and July housing data may have boosted investor expectations to unrealistic levels for August, typically a slower month for housing, according to Susan Maklari, housing equities analyst at UBS in New York.
Since the Labor Day holiday in early September, Maklari has seen signs of improvement in channel checks around the country.
“You’re going to see growth year-over-year coming through. It’s probably going to be in line with what people would expect for September, maybe a little bit better than that,” she said.
Maklari cited strength in western US markets such as California, where the technology sector is boosting employment and salaries. Weaker markets include the Washington DC area, where stringent government spending is causing uncertainty among potential home buyers. In Texas sales have weakened for homes in the $350,000 and above range, but demand is strong for homes priced at $200,000 and below, according to the analyst.
Mortgage rate increases in both June and July, when rates for 30-year fixed-rate loans were at 4.25%, likely helped to dampen sales in August, according to Sameer Samana, global quantitative strategist at Wells Fargo in St. Louis. But he noted that the rate has since come down to 3.88%, which could influence people who were close to but on the fence about buying a home.
“That’s one of the things that could lead to an upside surprise in next week’s numbers,” said Samana.
Many potential buyers also closely listen to comments by Federal Reserve Chair Janet Yellen about the US economy and short-term interest rates. Since many economists had expected a rate increase announcement on Sept. 17, this may have encouraged some buyers anxious to lock in a lower rate, said Jack Ablin, chief investment officer at BMO Private Bank in Chicago.
Not everyone is as upbeat. There has been a noticeable uptick in options traders’ appetite for owning protection on the SPDR S&P Homebuilders ETF, down 2% from mid-June.
But even an eventual increase in rates may not dim housing prospects quickly, if it is accompanied by positive talk from the Fed, said Samana.
“If they come out with a confident positive message when they start to raise interest rates a lot of folks might take that as a sign of confidence, he said.
