Use US Existing Home Sales to Forecast Trends in Exchange Rates
Features of US Existing Home Sales
Existing Home Sales is released by the National Association of Realtors (NAR) on a monthly basis. It shows the sales of existing single-family homes, condos and co-ops, in which the ownership of the property is transferred. Due to the subprime mortgage crisis, it is said that this economic indicator is more important than before.
Investors pay more attention on existing home sales than on new home sales. This is because that sale of existing home is much larger than that of new home. It is thus said that it is more reliable to examine existing home sales to predict the economic conditions. Investors also look at it as a leading indicator of housing market.
In addition, existing home sales reflect personal financial situation and is closely related to consumer purchases and demand for home furnishings. As a leading indicator of economic conditions, it is very essential to keep an eye on it.
It is necessary to pay attention to the fact that existing home sales can be easily influenced by personal income and mortgage rate. Especially, when the interest rate is raised, mortgage rate is also expected to rise in the future.
Release Date of Existing Home Sales and Its Impact on Exchange Rates
Together with new home sales and housing starts, existing home sales is compiled and released by the United States Census Bureau at the end of each month.
As for the influence of existing home sales on exchange rates, if there is an increase in the number of existing homes, in which a large amount of money is needed for one house, it is likely that the economy is recovering or expanding and investors would like to buy the currency.
In addition, existing home sales is subject to seasons. If the economy is in expansion, it is likely to sell more homes, and if the economy is in contraction, it is likely to sell fewer homes. When the number shows negative results, it shows that the prospect of economy is uncertain. The reverse is also true. When the number shows positive results, it indicates a strong economy and more investors are likely to buy the currency.
Different from clothing and daily necessities, buying a house usually requires tens of millions of Japanese yen. Due to the fact that house prices are high, it has a great impact on the economy.
Why do People in the US Prefer Existing Homes to New Homes?
This may be a straightforward question: “Why do more people in the US buy existing homes?” In fact, the number of existing home sales is about 6 times that of new home sales in the United States. This number shows that people in the US prefer to buy existing homes.
In the United States, when people become grown-up and get employed, as well as getting married, they tend to live near their workplace. Some people would also move from one state to another for the jobs. Furthermore, when children are born, some families would like to move to school districts which are located in the suburbs, while others would like to move to mansions located in the city center. Moving takes place every five to seven years and it turns into a cycle.
In short, people in the United States move to a place in line with their stages of life. It can be said that this is the lifestyle of the people in the US where there is not a lifetime employment system.
Another reason for the increase of existing home sales is that many building companies have been cutting back on building new homes. During economic recession, sales of new mansions and new detached houses have slowed down. These houses have then been turned into rental properties.
Important Things to Know About US Existing Home Sales
One thing that needs to pay attention to is that existing home sales are counted when the ownership of the property is transferred, which is different from the new home sales in which the statistics are counted when the sales contracts are signed. Therefore, there is a lag between new home sales and existing home sales.
As it is mentioned above, existing home sales can be easily influenced by seasons and it is difficult to predict the sales. When the released data is out of expectation, it can have a great influence on the market. Because it is difficult to make a judgment of trends in exchange rates by simply comparing the current number with that of prior month, it would be better to examine how the data is different from anticipation.
For example, even if the released data shows positive results, if they are the same as anticipation, investors would sell the US dollar as they may think that the growth is about to end. This is also true when the statistics are lower than expected. In this case, investors would also sell the US dollar as the results are out of their expectation. Conversely, even though the released data shows negative results, if they are the same as forecast or better than expected, investors would buy the US dollar since the situation is not as bad as they think.
In the foreign exchange rates trading, investors predict the movements of the market by taking into consideration of the business confidence. It is necessary to pay attention to how the prices move in the direction of market anticipation.
In particular, it is important to note that the results can differ from the forecast. When the interest rates are raised, mortgage rates are expected to rise. When the interest rates decrease, mortgage rates are expected to fall which will lead to cut back on purchase.