After the biggest (in lost value) and longest (in years) housing downturn in history, U.S. property markets are finally beginning to show signs of consistent recovery.
When the subprime mortgage market completely collapsed in 2008, the most significant immediate impact was felt in the credit markets. Most casual investors are not aware of the incredible importance of credit markets in the day-to-day operations of global, developed economies. Banks such as Bank of America, UBS, HSBC, etc., all finance their day-to-day operations by lending to one another in the overnight interbank market. When the subprime market imploded in ’08 and Bear Stearns, Lehman, and Freddie & Fannie all collapsed, banks essentially stopped lending to one another because no one knew who was going to be next in line. Would you want to loan a few hundred million dollars to someone if you didn’t know whether they would be in business the next day?
Finally, Central Banks and world governments stepped in and injected an unprecedented amount of cash into capital markets around the world in order to keep the economy afloat. These measures led banks to loosen credit toward each other, but today, nearly 3.5 years after the collapse, banks are still hesitant to lend to builders and homeowners.
This inability to tap credit lines has weighed heavily on the housing market recovery. If builders can’t borrow, they can’t build, and if buyers can’t borrow, they can buy. That is a significant problem.
Global equity markets began to rebound in March of 2009, and the economy at large followed suit. It has been a slow grind, however, for the housing market to show signs of consistent life. Now, however, we are beginning to see signs of consistent and steady positive economic data out of the housing industry. Although a home equity line of credit may still be difficult to secure, the market is showing signs of recovery.
Home Depot Beats Earnings
The housing industry obviously has a significant impact for good and bad on the performance of Home Depot. This week, Home Depot announced earnings for Q4 2011 at 32%, which crushed Wall Street analyst expectations. This positive Home Depot number is being bolstered by data from the U.S. government.
The Federal Reserve uses a few dozen major economic indicators in order to forecast U.S. GDP expectations and to make adjustments to its monetary policy decisions. Lately, the housing numbers have been beating expectations on a regular basis.
Here is a breakdown of the leading housing economic news releases from the month of February.
Housing Starts – Released February 16th. Expected figure was 0.68 million and the number came out at 0.7 million. The figure beat expectations by 200,000.
New Home Sales – Released February 24th. Expected figure was 316,00 and the number came out at 321,000. The figure beat expectations by 5,000.
Pending Home Sales – Released February 27th. Expected figure was 1.1% and the number came out 2.0%, which beat expectations by 0.9%.
These releases throughout the month of February are not quite enough to say for sure that the housing market has definitely bottomed out and is headed for full recovery, but we do have a strong case for the early signs of a strong recovery.