width=206Release: US Existing Home Sales (Feb) Consensus Forecast: 4.61M (annual.) Previous: 4.57M (annual.) Date/Time: 03/21/12 10:00 AM ET (14:00 GMT)

Housing Permits Point to Continued Rebound in Construction Sector

The focus of this week's economic data in the US is firmly on housing.

On Tuesday the figure on housing starts showed continued momentum in the construction sector. While starts remained relatively steady at 698K, the surprise came in the rise in building permits to an annual pace of 717K compared to the expected 700K gain. Permits act as a leading indicator for starts and points to continued strength in the early part of 2012.

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However that only shows strength in so much that the data reflects a bottoming out and rebound from the weak levels following the crash in the housing market in 2007-2008.

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Existing Home Sales Expected to Show Continued Improvement As Well

We are looking at a similar rebound in existing home sales as mortgage rates and prices continue to fall (-4.6% in the latest reading) making homes more affordable.  After a sales pace of 4.57 million annualized units in January, the expectation is that existing home sales rise to a 4.61 million pace in February.

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That would continue to build on the trend in housing seen over the previous 5 months, and build on the 20-month high in January. What is also encouraging is the the supply of existing homes has fallen to its lowest level since the recovery began - a 6.1 month supply at the current sales pace.

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Interpreting the Data - Likely Not A Market Mover, But Important to Gauge US Momentum

The pace of existing home sales is another data point to consider the current momentum of the US economy. While existing home sales don't add to GDP as housing starts do, every sale does create economic activity in the form of services rendered by realtors and lawyers, purchases of furniture, spending on remodeling, etc.

Therefore the release can help give us a clue as to whether the recent momentum can be sustained, or is it just a product of seasonally abnormal weather that has pushed up construction and home purchases. A rising sales pace would indicate that the recent gains in employment in the US have given home-buyers more confidence to make big purchases, and if the figure comes in as expected or beats the consensus forecast it could help to impact market sentiment in a positive way, after equities and risk were weakened as a result of worry around China's growth prospects.

The S&P500 continues to trade near its 4-year highs, but could be poised to pull back further even on a better than expected housing report if weak sentiment carries over from Tuesday's session. Still, without much fundamental catalysts, the market could see improvement in housing as a reason for cautious optimism. If not a significant market mover, the report should at least help guide market participants in their near term expectations for the direction of the US economy.

We will cover this report in our Wednesday  Market Intelligence Briefings. For information on special subscription rates for FXTimes briefings, click here.

Nick Nasad is a macro economist, market analyst, and educator; and one of the main contributors to  FXTimes - provider of Forex News, Analysis, Education, Videos, Charts, and other trading resources.

Information and opinions contained in this report are for educational purposes only and do not constitute an investment advice. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness. FXTimes will not accept liability for any loss of profit or damage which may arise directly, indirectly or consequently from use of or reliance on the trading set-ups or any accompanying chart analysis.