Housing and Economic Health: Housing Market Data and Indicators

Housing market data and indicators, like existing home sales, can impact stock and bond prices. Investors and traders should know when reports are released.

https://tickertapecdn.tdameritrade.com/assets/images/pages/md/Miniature house on top of printed stats: Housing starts, sales, and trends
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Key Takeaways

  • The housing market is a widely followed economic bellwether that can move stock and bond prices

  • Housing starts and building permits are two of the most closely watched housing numbers

  • Investors can apply their understanding of the housing market toward portfolio strategy in a few simple ways

For gauging the health of the economy, there’s no place like home. Housing market data has long been scrutinized by professional investors and traders seeking clues to the economy’s direction. Certain numbers, like housing starts and existing home sales, can move equity, bond, and commodity prices. Retail investors can similarly incorporate an understanding of housing numbers into trading decisions or portfolio strategy.

Housing, particularly residential real estate, is a critical leading economic and market indicator. Housing statistics issued by the government can offer a window into many related industries and business sectors. These include banking, construction, energy, technology, and home improvement retailers. 

As the COVID-19 pandemic illustrated, home is much more than a place to hang your hat; it’s increasingly where we work, play, teach, and learn. Investors can study the housing market in many ways: through government housing reports, stocks of homebuilders, and so-called real estate investment trusts (REITs). Here’s a primer on the housing market and some of the most widely followed housing indicators.

Why Is Housing Market Data Important?

Follow the money. By year-end 2021, the total of the U.S. housing market was more than $43 trillion, up $6.9 trillion in 2021 alone, according to Zillow Group. People spend sizable amounts on their homes and what they put in them, and because consumer spending accounts for upward of 70% of U.S. gross domestic product (GDP), housing can be a bellwether of retail sales and other economic activity months in advance.

It’s also important to know that housing is typically among the first sectors to weaken when the economy approaches recession and also one of the first to bounce back when the economy turns up. 

Housing Starts and Building Permits

Many housing statistics are considered lagging indicators because they reflect completed transactions from weeks or months before. However, housing starts and building permits are two widely watched backward-looking stats because they can identify a ripple effect of housing growth or retreat in particular regions or time frames. 

Housing starts are both a production harbinger for the economy and a barometer of builder sentiment. Tracking starts and permits together offer investors a great indicator for real economic activity. 

Starts are registered at the onset of construction (defined as the beginning of excavation of the foundation) of a house or apartment building. Building permits, registered with a government authority, typically precede starts by a month or two. Both starts and permits are released in the same monthly report from the U.S. Census Bureau, and numbers are expressed in terms of seasonally adjusted annual rates.

During 2022’s inflationary spike affecting housing spending in general, U.S. housing starts were creating fireworks. May housing starts were down 3.5% year to year and a full 14.4% below April 2022 figures. Permits tumbled 7% to a rate of 1.695 million units. During the early months of the COVID-19 pandemic, housing starts saw volatility as well. You can find housing starts data on the thinkorswim® platform. Select the Analyze tab > Economic Data, and then enter HOUST:FRED in the symbol box (see figure 1).

FIGURE 1: PANDEMIC-ERA STARTS. Housing starts decreased in January 2021 after a significant rise since April 2020. You can find hundreds of housing data points on thinkorswim on the Economic Data tab, which can be found under the Analyze tab. Data source: the Federal Reserve FRED database. Chart source: The thinkorswim platform. For illustrative purposes only. Past performance does not guarantee future results. FRED® is a registered trademark of the Federal Reserve Bank of St. Louis. The Federal Reserve Bank of St. Louis does not sponsor or endorse and is not affiliated with TD Ameritrade.

New Home Sales and Existing Home Sales

New home sales, also compiled by the Census Bureau, measure the number of newly constructed homes with a “committed” sale during a month. Existing home sales (also known as home resales) from the National Association of Realtors are the number of previously constructed homes, condominiums, and co-ops for which a sale closed during the month.

New home sales make up only about 10% of all U.S. home sales, but they have an outsized economic impact because new homes create construction jobs, investment activity, and related spending that helps the economy.

In May, the National Association of Realtors reported existing-home sales fell 3.4% from the previous month and 8.6% year to year.

S&P CoreLogic Case-Shiller Home Price Indexes

Home price trends over the short and longer term influence consumer sentiment and behavior and factor it in to broader economic health. That’s one reason the S&P CoreLogic Case-Shiller readings are among the most widely followed U.S. residential real estate price benchmarks.

S&P CoreLogic Case-Shiller Home Price Indexes track monthly changes in the value of residential real estate (based on existing home prices) in 20 U.S. metropolitan regions and the country as a whole.

Hindsight may be 20/20, but history is worth remembering. The S&P CoreLogic Case-Shiller Home Price Index climbed steadily from the mid-1990s to mid-2000s before hitting a then-peak in the summer of 2006. A real-estate bubble was about to burst, triggering the Great Recession of 2007–09.

In June 2022, the S&P CoreLogic Case-Shiller 20-city composite index rose 21.2% year over year. To get the Case-Shiller data on thinkorswim, under the Analyze tab, select Economic Data > Prices > House Price Indexes. From there, you can access all the Case-Shiller data—national, regional, and local—and hundreds of other housing numbers (see figure 2).

FIGURE 2: TRACKING RESIDENTIAL REAL ESTATE VALUE. Pull up the S&P CoreLogic Case-Shiller Index, plus other housing data points such as existing home sales, from the Economic Data tab in thinkorswim. Data source: the Federal Reserve FRED database. Chart source: The thinkorswim platform. For illustrative purposes only. Past performance does not guarantee future results. FRED® is a registered trademark of the Federal Reserve Bank of St. Louis. The Federal Reserve Bank of St. Louis does not sponsor or endorse and is not affiliated with TD Ameritrade.

Homebuilders, Home Improvement, and Other Housing-Related Stocks

Publicly traded homebuilders are among the most direct ways to gain exposure to, or at least follow, the housing market. These companies include D.R. Horton (DHI), LGI Homes (LGIH), Lennar (LEN), PulteGroup (PHM), and Toll Brothers (TOL).

Other housing-related sectors are more about the stuff people put inside their homes, including home improvement chains like Home Depot (HD) and Lowe’s (LOW), as well as appliance, furniture, or electronics retailers, such as Best Buy (BBY), Laz-Y-Boy (LZB), and Whirlpool (WHR). Another potentially intriguing angle includes publicly traded REITs, several of which are linked to the residential sector.

How Do Markets React to Housing Data?

Housing data doesn’t carry the same economic heft as, say, unemployment figures for price impact on bonds and equities, but it can be very useful when economic cycles are turning. 

Stronger-than-expected housing starts can help trigger a rally in stock prices based on expectations that accelerating economic growth related to new homes and neighborhoods springing up will push corporate earnings higher. At the same time, Treasury prices may dip over concerns about rising inflation and/or higher interest rates related to monetary tightening/loosening by the Federal Reserve (bond prices move in the opposite direction of rates).

Conversely, weaker-than-expected starts may push equity prices lower and bond prices higher, amid prospects for a slower economy and lower interest rates.

Whether you’re an active trader, long-term investor, retiree, or anything in between, you’re likely connected to the housing market as an owner or renter. For many Americans, home equity represents a large chunk of the nest egg. And from a fundamental standpoint, housing market trends are directly connected to consumer spending, which accounts for roughly 70% of the economy.

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Key Takeaways

  • The housing market is a widely followed economic bellwether that can move stock and bond prices

  • Housing starts and building permits are two of the most closely watched housing numbers

  • Investors can apply their understanding of the housing market toward portfolio strategy in a few simple ways

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