Expected rise in US home sales set to support retail spending – ING

FXStreet (Barcelona) – James Knightley, Senior Economist at ING, notes that rising incomes and confidence should mean a pick-up in mortgage rates won’t lead to a reversal in the housing market and that new cycle highs for sales can be reached.

Key Quotes

“Yesterday’s pending home sales report, showing growth of 0.9% MoM, was a touch weaker than expected while the downward revision to April’s figures (2.7% MoM versus initially reported 3.4% MoM growth) was also a little disappointing. Nonetheless, the figures remain consistent with an ongoing strengthening in sales of existing homes. Indeed, pending home sales reflect contracts signed for a house purchase rather than actual concluded sales so given pending home sales have reached a new cycle high it does suggest that existing home sales will follow in the months ahead. This would take us back to levels of home sales not seen since the housing boom in the mid-2000s.”

“Admittedly, the rise in mortgage rates, reflecting the pick-up in Treasury yields, is likely to slow the pace of growth in home sales in coming months. However, mortgage applications have picked up after weakness in May and with employment rising strongly, pay starting to show signs of accelerating and consumer confidence looking very healthy we think that higher borrowing costs will not derail the housing market story.”

“Moreover, with the strength in housing demand offering support to prices, we expect homebuilders to continue to boost construction, which should be supportive of residential investment and GDP.”

“Furthermore, with the number of home sales set to rise further this too should be supportive of retail sales given the strong correlation with expenditure on household furnishings, carpets and building materials.”

James Knightley, Senior Economist at ING, notes that rising incomes and confidence should mean a pick-up in mortgage rates won’t lead to a reversal in the housing market and that new cycle highs for sales can be reached.

(Market News Provided by FXstreet)