There may not be a more important sector of the economy than housing. Everyone needs to live somewhere, and they tend to spend a relatively fixed portion of their income on housing. When capital is available to homeowners, they tend to spend it. They hire contractors, buy manufactured goods, and pay taxes. When they’re paying taxes, local governments are making investments in schools and roads, which means more jobs and materials to purchase. Communities with strong infrastructure and education tend to bring in more capital for housing. It’s what economists call a virtuous cycle. As housing goes, so to goes the economy.
That’s why it’s such a relief to see the Department of Housing and Urban Development report which shows a continued increase in single-family home sales. In fact, this is the highest those sales have been in eight years. Amid fears of recession, these numbers are a strong sign of hope for the American economy.
Single family home sales tend to be a pretty good indicator of several key economic markers. People only buy homes when there’s credit available, and credit’s only available when investors think people will be able to pay off loans. So, investors are behaving like the future is bright.
People also only tend to buy homes when they’ve got a degree of financial security. These numbers suggest that people feel that way, regardless of what the unemployment data says. Unemployment numbers don’t tell the whole picture; they exclude people who voluntarily leave the workforce, take up freelancing, or for some other reason aren’t looking for a job. The single-family home sales numbers are a better predictor because they’re based on what people are doing, rather than what they’re telling the Department of Labor..
Single family home sales also track well with a number of other non-cyclical components of the economy. When people buy homes, they also tend to buy stuff to put in those homes, which means better performance in the consumer goods sector. They also tend to buy more insurance, which means things are looking up in financial services. There aren’t a whole lot of places where the continued home-buying trend won’t be well-received.
In a world of economic panic post-Brexit, numbers like these are a great reminder that the US economy has an independent life. People live here, and that living has a strong economic existence. While European and developing markets are trying to figure out up from down, the American investor knows where his dollars are safest: at home.