Will the Housing Market Drive a U.S. Economic Recovery?

Yesterday Goldman Sachs analysts Joshua Pollard and Anto Savarirajan  issued a note stating that they see a housing recovery beginning to emerge in the U.S. and raised their rating on the home-building industry to attractive from neutral.

“The super cyclical housing market has turned and a strong recovery in new-home sales is ahead,” they wrote in a note to clients.

“Over the last year a number of risks to the housing market have abated, giving us confidence that rising home prices will drive a 3-7 year up-cycle in the U.S. market” they wrote.

On Bloomberg’s Taking Stock Joseph McAlinden, Chief Investment Officer with Catalpa Capital told host Pim Fox , “The thing that’s been missing in the U.S. economic recovery is an upturn in housing that classically leads all other sectors.”

“That did not happen this time around because the downturn risks were so severe” he said.  “But the evidence is mounting day by day that we’re getting tremendous momentum in that sector which will have spillover effects in housing” McAlinden added.

McAlinden noted that a Wall St. Journal article on Monday reported that pick up sales are being stimulated by housing.  

Home construction is the most important driver of light-truck sales.

“We believe there will be actual shortages in homes that will drive upturn in construction that will spur GDP numbers.” McAlinden said.

He believes that the U.S. GDP number which will be released on July 27th will be closer to 2% based on housing.

The latest housing data shows that home prices across many U.S. markets have stopped falling. 

Construction on new U.S. homes rose in June to a seasonally adjusted rate of 760,000, a 6.9% increase over May following a revised 711,000 rate in May, according to the Commerce Department.  

However, Americans bought fewer homes in June than May.

The National Association of Realtors said last Thursday that sales of existing or previously occupied homes fell 5.4% in June to a seasonally adjusted annual rate of 4.37%, an 8 month low.

Sales are still up 4.5% from a year ago, showing that the housing market is actually recovering. But the annual sales pace is still below the 6 million that most economists consider healthy.

The number of first time home buyers fell in June, making up 32% of sales in June compared to 34% in May.

The disappointing June existing housing sales contrasts with other housing data that shows gains in new residential construction, stronger builder confidence, and more signed contracts to purchase previously owned homes.

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