Understanding Housing Economic Indicators
February 26, 2010
Economic indicators that kept track of the housing market condition are constantly being monitored by analysts, investors, and policy makers. To understand the indicators you must understand the indicators, which include the following.
Housing Starts
Housing starts is nothing more than the start up purchases that buyers purchase to furnish their new home. This report is more than likely the most important report found on the housing sector as it causes a very large ripple effect in the economy when the items such as furniture and appliances are purchased. Eighty-five percent of the housing industry is seen in the construction of single-family homes. Multi-family properties make up the rest of the housing market, which is considered to be highly volatile.
Home Sales
Homes sales are ten percent of the housing market and are only put into the table after the contract on the new home is signed. New home sales are completely different than the way that existing homes sales are computed. Existing home sales are computed at the time of the closing, which reveals contracts that were signed a month or two before the report was created. When you look at the housing market, more than eighty percent is due to existing home sales. Within this category of home sales you must not forget homes sales that are pending which is known as the pending homes sales index. This indicator is one that relates to existing home sales and not new homes. A pending sale is one in which the buyer and seller have agreed and signed a contract but the deal has not been closed. Since it takes up to six weeks for a home sale to close, it is one of the leading indicators that are watched closely.
Housing Price Indices
The Federal Housing Finance Agency Index and the S&P/Case-Shiller home-price index are the two housing price indices.
The Federal Housing Finance Agency Index is one that follows houses that are purchased with mortgages through Freddie Mac or Fannie Mae. This index leaves out many of the foreclosure sales as well as any properties that were purchased with non-conventional mortgage loans. These home loans symbolize a more stable pricing index as they did not see the rise and decline in prices that was seen in other markets over the last decade. On the other hand, the S&P/Case-Shiller report is centered on the larger metropolitan areas and does include distraught properties. The report also includes non-conventional loans, but prices of these homes are usually quite a bit more volatile.
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One Comment to Understanding Housing Economic Indicators
Comments
That’s very interesting and informative. I didn’t know that the FHFA Index was so specific in what sales were included. Readings from it to be taken with a pinch of salt then?
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