uploads///House Price

Optimistic Housing Index Lifts Real Estate Stocks

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Sep. 23 2015, Updated 3:46 p.m. ET

House Price Index rose 0.6% in July 2015

Real estate is one of the sectors that recedes with economic slowdown and booms with economic growth. According to the Federal Housing Finance Agency (or FHFA), house prices increased by 0.6% in July as against the 0.2% rise in June 2015. House prices were up 5.8% over the past year. In the last 12 months, changes in house prices were all positive, ranging from 2.1% in the New England division to 9.4% in the Mountain division. However, over the past month, price changes have ranged from -1.2% in New England to 1.6% in the Mountain division.

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XHB increases with rising house prices

The SPDR S&P Homebuilders ETF (XHB) has increased 17.97% over the past year. Building products companies like Owens Corning (OC) and Allegion (ALLE) were up 35.24% and 23.20% for the same period as of September 22.

Optimism in housing leads to an increase in demand for furniture, home appliances, and furnishing products. Home furnishing stocks such as Tempur Sealy International (TPX) and Leggett & Platt (LEG) were up 31.39% and 20.64%, respectively, over the past year as of September 22.

The FHFA HPI is calculated using home sales price information from mortgages sold to or guaranteed by Fannie Mae and Freddie Mac. A continued positive trend in index offsets the recently released negative home sales drop of 4.8% in August.

A definite trend in house prices may help develop business sentiment and may provide the impetus for construction and housing start activities. It also reflects positive consumer attitudes and growing confidence in the economy with better job prospects and low interest rates.

The US and the Eurozone are both struggling with low inflation and consumer sentiments. The Eurozone consumer confidence reading for September was just released. We’ll take a look at this in the next article.

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