Case-Shiller's Housing Index and October's Housing Starts Don't Shake Up Markets

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

Two important housing data points were released this morning: the S&P 500/Case-Shiller Home Price Index and the U.S. Department of Commerce's housing start numbers. Despite strong numbers on the housing front, the major indexes are rather flat this afternoon. As of 1:10 p.m. EST the Dow Jones Industrial Average is higher by only 0.12%, while the S&P 500 has risen 0.18%, and the Nasdaq has increased by 0.54%.

Let's take a look at the housing data, starting with the Case-Shiller index. This index is a backward-looking indicator that tracks housing prices in a 10-city composite, 20-city composite, and a national figure. The most recent data indicates that home prices on a national level rose 3.2% in the third quarter and 11.2% over the past four quarters. Furthermore, in September the 10- and 20-city composites gained 0.7% on a month-over-month basis and are now up 13.3% year to date. Thus far, 12 cities around the U.S. have posted double-digit annual returns, which is rather impressive considering many still believe the economy is not strong enough to stand on its own. Lastly, at this time the national home price average is back to its mid-2004 level and only 20% below its peak in June/July of 2006.  

The Commerce report shows the number of building permits rose to a seasonally adjusted rate of 1.034 million in October, which is 6.2% higher than September and 13.9% above where the figure from October 2012. This is a great sign that the housing industry continues to be strong and that interest rates have not yet begun to affect the numbers of buyers. Numbers for housing starts and housing completions during October could not be calculated due to the government shutdown and will be provided on Dec. 18, 2013, along with the figures for September and November.  

Investors should consider all this information as good, but understand that when the Federal Reserve does begin tapering its bond-buying program, interest rates will rise. It is likely that we will then see at least a temporary slowdown in housing starts and permits, as well as rising housing prices. But a slowdown does not indicate a crash is coming, and while investors should take this information in, they shouldn't react negatively at the first sight of weakness. When it comes to housing, the population continues to grow and thus the number of homes needed will also continue to increase, despite the fact that there is so much pent-up demand caused by the recent recession.

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