Housing Market and Forex

by FX EA Review
Housing Market and Forex

The collapse of the US housing market in 2007 triggered a chain of events that led to a major global financial crisis a year later. That was the strongest proof of the significant stake of the housing market in the global economy. Therefore, the strength of a country’s economy can be gauged by looking at housing market data.

As a result, housing market data has a significant impact on the value of the currency of the country from which the data is gathered. With an in-depth knowledge of housing statistics, a currency trader can take the appropriate position in the most suitable currency pair on the Forex market at the right time.

Main types of housing market data

Various organizations collect and report various types of housing statistics. The vast majority of housing statistics are released once a month.

Existing home sales

This data is released by the National Association of Realtors (NAR).  It is a report of statistics on the sales of existing homes. It is typically released on or around the 25th day of each month and gives statistics on home sales in the four key regions of the United States.  The numbers represent the state of the US housing market at the time of the survey’s completion.  Usually, the data has little impact on the currency market. 

Pending home sales

This is another set of data released by the National Association of Realtors and is based on information collected from real estate agents and brokers. It reports on the number of house sales whose transactions are in the pipeline or pending completion. 

Usually, such transactions are completed within two months, a factor that makes this data a more reliable predictor of the performance of the US housing market.  Pending home sales are technically precursors to actual home sales. The index uses the year 2001 as the base year and 100 as the base value. It is reported monthly and has a moderate impact on currency markets.

New home sales

The US Census Bureau releases unadjusted sales data each month, which show the demand for newly built homes. In addition, the bureau releases seasonally adjusted annual sales figures. With this index, the performance of the market is measured based on the differences between the previous month’s percentage growth and the current month’s percentage growth. The data has a moderate influence on the currency market.

Housing starts and building permits

This data is released by the Department of Commerce on the 16th of every month. It is based on the number of building permits issued and gives the number of plots on which construction of housing units has commenced. The currency market is moderately affected by the data’s release.

NAHB Housing Market Index (HMI)

HMI is based on a scale that ranges from 0 to 100 and is released by the National Association of Home Builders. It gives statistics on the state of the single housing units market every month. Its release usually has a moderate impact on currency markets. 

Home sales and dollar value

You can use data on US house sales to anticipate the direction of the US dollar price. A rise in the yearly number of existing-home sales may indicate a favorable trend for the US dollar. Increased confidence in the housing market might lead to an increase in the number of investors, which would lead to further strengthening of the US economy and appreciation of the dollar.

Conversely, a significant decline in the number of new home sales is interpreted as an indication of a poorly performing economy. Therefore, if the number of new home sales comes in lower than predicted, investor confidence in the strength of the US economy will decline, and the market will become bearish towards the US dollar.

When the US dollar gets stronger, it’s more expensive to buy against other currencies that aren’t as strong. Property values often rise as a result of this. Foreigners who wish to buy a house in the United States will have to pay more of their home country’s currency to make the purchase in United States Dollars (USD). This makes forex traders bullish towards the US dollar. 

Exchange rates and property market

There are two ways to trade property: using your local currency or using a foreign one. However, transacting in a foreign currency has a higher level of transaction risk. The value of a foreign currency will be determined by the strength of your country’s own currency.

The stronger your own currency is, the better off you’ll be if you have to choose between using foreign currency or your home currency. As a result, the best moment to buy property in a foreign country is when your home currency appreciates versus the currency of that country. 

Property values are a good indicator of an economy’s health. The financial markets are likely to be impacted if property prices fall or if a decline is predicted. It also has major ramifications for market confidence among consumers. People become wary of investing in real estate when prices are expected to fall, which causes prices to drop even further.

As property values fall, consumer spending and overall demand will be negatively affected. This could lead to slower growth or perhaps a recession. 

In summary

The housing market plays an important role in the overall health of a country’s financial system. Growth and decrease in this sector have a direct impact on the gross domestic product (GDP) and the national currency of a country. Traders can use their knowledge of the housing market fluctuations to build their positions in forex trading.

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