The Dow Weighs Housing's Mixed Message

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During earnings season, it's easy to lose sight of the macroeconomic factors that tend to dominate stock market trading between quarterly reports. Yet despite today's big drop from McDonald's following an unfavorable earnings report, part of the reason the stock market is losing a bit of ground this morning is the mixed news from the housing sector. Sales of existing homes fell 1.2% to 5.08 million annually, disappointing those who had expected a substantial gain. Still, the median price of homes sold jumped 13.5%, pointing to the continuing bounce in home prices we've seen take shape over the past year. That conflict left investors searching for direction, and as of 10:45 a.m. EDT, the Dow Jones Industrials were up about two points, with broader markets also showing mixed results.

Within the Dow, one of the best barometers of the housing market is Home Depot . With its finger on the pulse of consumers seeking to make renovations to their existing homes, as well as contractors that both help make those renovations and construct new homes, Home Depot's stock has soared to all-time record high levels recently. Today's slight 0.1% gain supports the conclusion that investors aren't panicking about a single month of unfavorable data, but if slumping sales continue, then it could remove a key support from Home Depot's long bull-market move.

The other industry that relies on housing activity is mortgage banking, and there, too, results today are mixed, with JPMorgan Chase and Bank of America posting respective gains of about 0.5% and 0.9%. The rise in prevailing mortgage rates sent mortgage application volumes to two-year lows, with refinancing activity in particular taking a hit. So far, JPMorgan and B of A haven't seen higher rates affect new-purchase mortgage volume: JPMorgan reported a 44% jump in sequential mortgage originations, while B of A came in with a 40% year-over-year rise. But if sales activity slows, then mortgages will necessarily follow suit, spelling potential trouble for the big banks and their highly profitable mortgage divisions.

Perhaps the best indicator is the SPDR S&P Homebuilders ETF , which dropped about 0.2% on the news. Homebuilders need a healthy combination of sales and price growth, so this morning's news threw some water on the bullish view of the industry. Given the huge importance of housing to the entire economy, you should stay tuned to future reports on sales of new homes -- the next one comes out later this week.

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Fool contributor Dan Caplinger owns warrants on Bank of America and JPMorgan Chase. You can follow him on Twitter @DanCaplinger. The Motley Fool recommends Bank of America and Home Depot. The Motley Fool owns shares of Bank of America and JPMorgan Chase. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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