Updated 2/12/20, Posted 9/17/13

By Jean Regan, President & CEO

In this seven part series, I’m focusing on different commonly referenced indicators and explaining their impact.  These indicators are (1) the unemployment rate, (2) the inflation rate, (3) housing sales and starts, (4) the Federal Reserve’s Monetary Policy, (5) retail sales, (6) ISM non-manufacturing and manufacturing index, and (7) GDP growth.

Housing metrics are often featured by the media.  While it’s common knowledge that an increase in housing sales is typically a positive economic indicator, it may not be as obvious which other metrics we should be watching and what they mean to the logistics industry.   

Which housing statistics should we watch?

A “For Sale” sign lingering in front of a person’s house for too long can create uncertainty, and for everyone who has a friend with a story of a home that sold in a few days, there are those whose homes remain on the market unsold for months...or years. Housing comprises about 5% of GDP, and when you’re looking at both residential investment and housing services it accounts for 17-18% of GDP, so it is an integral component of our economic engine. Housing metrics are compiled and released regularly.  Of all the numbers collected, there are two main metrics to watch in the housing market: sales and starts.  

Housing sales

The sales category can be broken down into existing home sales and new home sales.  

Existing home sales are tracked by the National Association of Realtors (NAR) and around the 25th of each month they release the data for the previous month.  

New home sales are tracked by the U.S. Census Bureau and are similarly released near the end of the month for the previous month.  Along with these, there are also insightful reports about trends in housing sales produced by Bloomberg, Freddie Mac, and others.  

It’s important to note is that the timing of new and existing home sales isn’t the same.  New home sales typically lead existing home sales by about a month or two due to the amount of time involved in closing the sale of an existing home.

Another important thing to remember is that the buyer isn’t necessarily occupying the new or existing home they buy – in many cases, and especially in recent times, these units are bought by investors and managed as rental property.  As reported by the Census Bureau, home ownership among households with children dropped 15 percent from 2005 to 2011.  When a purchase is made by the person who intends to occupy the unit, it indicates more stability in the economy than when investors are the ones driving the market.  

I could relate many stories of individuals who purchased property for investment purposes prior to this most recent recession where the outcome was unsettling. One story:  a woman with an income of $30,000 purchased a condominium in 2006 costing $125,000 for investment purposes. She rented it to two young men and for several years, rent was received on time and the value of the condominium rose each year. Then one of the young men moved out; she couldn’t find another renter and the Great Recession hit. Last year, with the value of the condominium at around $65,000, she turned the property over to the bank and walked away from the investment.

Housing starts

New housing starts are defined as new residential construction that can be either single family or multi-family units.

The U.S. Census Bureau measures the number of authorized building permits, the housing starts, and the housing completions. A site where ground has been broken and construction started then stopped is highly visible and often talked about. What most people don’t see though is the drop off that occurs in the stage before this: building permits that are approved but never reach the construction stage for one reason or another.

Mortgage interest rates

One last housing market metric to keep on top of is mortgage interest rates.

Interest rates are largely influenced by the activities of the Federal Reserve. For example, over the past month interest rates have risen more than one percentage point since Federal Reserve Chairman Ben Bernanke hinted that the central bank will decrease the monthly bond purchases which previously have lowered rates. What happens with these rates has a large influence on this industry.

What do housing market changes mean for the economy? 

Positive changes in the housing market are a good sign of consumer confidence, and the reverse, of course, is true as well.  However, the housing bubble of 2008 is a warning to all of us that there can be too much confidence at times, so this metric alone doesn’t provide a balanced picture of what’s to come in the economy.  Increased activity in this market can also be caused by pent up demand, and therefore doesn’t necessarily mean that people will be expanding their purchases elsewhere.

What do housing market changes mean for the logistics industry?  

Changes in the housing market impact the logistics industry indirectly, yet the impact is significant. One obvious way is that a good housing market, and the increased economic activity that goes along with it, means there will be more shipments taking place.

Less obvious but equally important, is to keep an eye on the number of building permits that are submitted since they indicate future economic activity. While some of these plans may be cancelled if the economy takes a turn for the worse, this metric provides a good indication of what investors and individuals expect in coming years.  

As economist Gary Shilling pointed out in a recent interview with my husband, Mike Regan, in an unsure economy it doesn’t take much to throw things off balance.  That’s why I keep an eye on many of the economic indicators available to us, including those tied to the largely influential U.S. housing market.  I would certainly recommend for you to do the same.      

How have you seen the housing market influence the logistics industry? Are there any tools you use to keep an eye on housing trends?  Comment below to share.