Part III. Fundamental analysis / Chapter 13. Consumer demand indicators

Consumer demand indicators include:

• Housing construction and housing market (Construction Data);
• Permits for the construction of new houses (Building Permits);
• Construction Spending;
• Construction of new houses and building permits (Housing Starts and Building Permits);
• Sales of new housing (New Home Sales);
• Sales of housing in the secondary real estate market (Existing Home Sales).

Housing construction and the real estate market (Construction Data). According to statistics, slightly less than half of the budget of the US population goes towards housing expenses. Therefore, the housing construction indicator reflects the overall value of consumer demand. In addition to housing expenses and mortgage payments, the indicator includes the demand for durable goods related to housing, such as household items, furniture, and plumbing fixtures. The real estate market indicator can also characterize the volume of construction, as the number of ongoing construction projects is directly dependent on the demand for housing.

Based on all of the above, it can be concluded that the Construction Data indicator is a reflection of the health of the economy, as construction represents a significant share of the country's GDP. Therefore, the strengthening and growth of the national currency's exchange rate depend on the dynamics of this indicator. The values of the indicator are largely influenced by changes in interest rates since the demand for mortgage loans depends on it. The Construction Data indicator takes into account all stages of construction, starting from the excavation of the foundation of a house. There are two types of construction distinguished:

• Single-family housing;
• Multi-family housing

Naturally, construction activity is influenced by the time of year, so this factor should be taken into account when analyzing the data

Building Permits. This indicator represents the number of permits issued for housing construction in the near future, making it a leading indicator of economic activity. The data is collected based on reports on the number of permits issued by 19,000 organizations authorized to issue such permits. The indicator is sensitive to changes in interest rates and the time of year, which is a characteristic feature of the real estate market.

An increase in the value of the indicator indicates positive trends in the number of new housing constructions, reflecting an increase in the population's income. Although the indicator has a minor impact on the currency market, the growth dynamics are directly proportional to the strengthening and growth of the national currency's exchange rate. The data is published monthly in the third week at 16:30 Moscow time.

Construction Spending. The Construction Spending indicator is divided into three categories:

• Construction within city limits;
• Construction outside city limits;
• Residential construction spending.

This indicator has a minor impact on the market due to its susceptibility to seasonal fluctuations and sensitivity to changes in interest rates. Typically, analysts examine the quarterly dynamics of this indicator. Data for the two previous months is published on the first business day at 18:00 Moscow time.

Housing Starts and Building Permits. This indicator combines data on the number of new construction projects and permits issued during the month. Seasonal fluctuations and sensitivity to changes in interest rates are characteristic of this indicator, as well as other real estate market indicators.

It is generally considered that the optimal range for this indicator is between 1.5 and 2 million new construction projects. Readings below this level indicate a decline in economic activity. Data on housing starts is published monthly on the 16th day at 16:30 Moscow time.

New Home Sales and Existing Home Sales are indicators that characterize the supply and demand in the real estate market, with 84% of sales attributed to the secondary housing market and the remaining 16% to new homes. Both indicators can fluctuate significantly from month to month depending on the season and interest rates. These indicators are lagging behind changes in mortgage rates, as there is typically high demand for housing during periods of economic growth. During an economic downturn, housing demand is usually low, while the unsatisfied demand at the beginning of an economic cycle provides a boost for new construction development.

Essentially, the indicators of New Home Sales and Existing Home Sales complement each other, but more attention is paid to the latter in analysis because it is published earlier. The New Home Sales indicator is published at the end of the current month or the beginning of the following month at 18:00 Moscow time. The Existing Home Sales indicator is published on the 25th day at 16:30 Moscow time.

The indicator of sales in the existing home market also includes data on housing "inventory" - a measure that reflects the necessary number of months to sell the existing housing inventory at current sales volumes. Housing inventory is related to current housing prices. The value of this ratio indicates the period through which all properties will be sold at current prices and sales volumes. This index reflects the demand for real estate in inverse proportion: the lower the index value, the higher the demand

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