One of the challenging parts of analyzing any major economy, especially one as complex as the one at home, is realizing that seemingly unrelated trends in one sector can speak volumes about what’s unfolding in another. Investors are chomping at the bit for signs of stabilization in the housing market, and with an ongoing recession it’s understandable that we’re all afraid of fiscal mirages. However, even with the looming fiscal cliff, are there indications that the housing market will continue turning the corner?
Big bank analysts have openly discussed a rebound in the housing market in the last two months, and these remarks only became more confident after Q3 reports indicated not only a climb in new home purchases but greater reliability in the mortgage market. Overall, Americans are purchasing more and defaulting less. Much of this seems propelled by a combination of housing-friendly government initiatives mixed with newly generous loan policies on the part of major lending bodies. That being said, the American economy (or any economy for that matter) is made of intimately linked supplies chains.
New reporting from Seeking Alpha points to Home Depot’s revenue upswing as a novel validator of market strength. The home improvement outlet’s Q3 revenues leapt 4.6% over those from third quarter 2011. Mitigating some external factors (namely the closing of unprofitable stores in China), quarterly earnings increased a full 23% year-over-year. In reviewing the quarter’s reporting, Home Depot’s positive financial returns far outstripped consensus estimates.
Housing sales and mortgage responsibility can stand strong on their own, but watching a company whose business model is so intimately tied to home purchase report such sanguine earnings is even stauncher validation of an ongoing rebound. As the analysis from Seeking Alpha was keen to note, much of the upswing in revenue came from exceptionally high appliance sales. Even beyond the financial puppeteering of the big banks, the fact that Americans are vast flocking to Home Depot to purchase or preorder new amenities shows newfound consumer confidence.
In the wake of broader market trends and increases in sales closing, Home Depot has upgraded its year-end earnings per share outlook. The boldness of this late-stage move only further points to an enduring recovery. Even beyond forecasting from the retail sector, certainty that there won’t be a policy shakeup with Obama’s election victory soothes fears around a politically induced market jolt. It’s safe to say that consistency and predictability are the housing market’s best friends at this stage, whether from financiers or the government.
It seems the best stance for both investors and homebuyers at this stage of the game involves carefully scanning the market at large. Regional housing recoveries come and go, but cross-national validation in the form of watershed home improvement revenue and newfound lending generosity all paint a fuller portrait. With the American fiscal year coming to a fast close, it remains to be seen whether or not our country’s foreclosures themselves will come to a stop.
Harrison Stowe is a writer for NVR Inc., a prime developer of new homes in Virgnia. Addressing a range of real estate topics including investment, mortgages, and new construction, Stowe combines finance knowledge with additional experience working with Ryan Homes in the current real estate market.
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