Contracts written to purchase previously owned homes rose in February by the most since July 2010. Up until now, the US housing market has been suffering a drought, with a severe lack of homes for sale.
The US is experiencing the warmest weather it has had in several decades. The weather coupled with the potential for higher interest rates spurred a shopping spree for home owners.
The Trump rally has also inspired an increase in consumer confidence in the US, which has driven home buyers into the market. The steady job market in the US is another supportive reason for consumers to invest in a new home.
However, the pickup in February’s sales may not translate to March. Supply of houses may be unable to keep up with demand, thus increasing the price of available houses and decreasing the amount of sales that take place.
Pending home sales rose 3.4% in the Northwest and 11.4% in the Midwest for February. Sales climbed 4.3% in the South,3.4% in the Northwest and 3.1% in the West.
How does this affect traders?
This data is a leading indicator of the health of the US economy. The sale of a home has profound ripple effects on the economy. For example, renovations usually follow the purchase of a home and credit must be accessed.
The supply and demand of homes also have a major impact on inflation. If demand outpaces supply, there will be a sizable increase in inflation, which in turn puts upward pressure on wages.
The demand for housing will ignite the building of new homes, which increases infrastructure spending.
While the data is lagging, it does represent future contracts therefore it is the best housing indictor provided.
Note: Existing home sales for March will be released on April 21st.