“How’s business?” I asked my friend when we spoke last week.
I use this friend of mine as a barometer for the housing market. He’s a builder who also takes on major renovations. And I’ve learned that when his business is good, the overall housing picture usually is too.
“I can’t seem to get any sleep either,” he continued. “I’ve been working until midnight every night getting bids together for even more work.”
His answer certainly wasn’t what you’d expect to hear in the middle of a recession and pandemic. But this anecdotal experience actually lines up perfectly with the recent data we’ve seen from the housing market.
This sector is much healthier than you’d believe. And that’s a strong sign for the overall economy.
Let me explain…
The housing sector is one of the most important and dynamic parts of our economy. It’s also one of the nation’s largest employers.
What happens to housing affects people who work directly in the construction business. But it also impacts other industries all across the economy.
According to the National Association of Home Builders, the housing sector directly accounts for roughly 17% to 18% of national gross domestic product. And that doesn’t account for all of the secondary groups affected by housing demand.
So, if housing is rebounding, it’s a good thing for the economy. It spreads throughout the economic chain, through things like furnishings, lighting, lawn service, food delivery, beverage consumption, and vacations, among others. All that spending will translate into new jobs and better wages, aiding the cycle.
Simply put, a booming housing market is crucial to a strong economy. And as my friend is experiencing right now, housing appears to be in great shape.
The most recent data for new home sales was much stronger than expected. The annual sales rate was 776,000 in June versus the expectation for 700,000. That’s a big number – especially considering it took place in the summer, a traditionally slower time for housing sales. We haven’t seen a number this strong since July 2007.
This speaks to the underlying strength of the U.S. economy. It’s also a concrete sign that the Federal Reserve’s easy-money policies are having an impact.
My builder friend is just one example of how this shows up. I’ve got other friends in the industry telling similar stories, too…
One who I find most helpful is a guy in the excavation business. That’s important because of the time horizon on his jobs.
You see, big homebuilders hire him to develop new land. He clears out the trees, smooths out the ground, lays the pipes, and puts in roads… taking care of everything all the way up to the foundation.
My friend is so busy, he’s had to take on new staff. He said his future revenue stream should be locked in for at least two years out. Plus, he’s spending his days working on bids for new work.
In fact, he told me that he has more jobs coming in the door than he’s ever seen in his career… And these are people with plans that can take at least 12 months before they start construction. So we’re talking about real, long-term demand.
The point here is that housing is in better shape than you probably realize. Based on the data I see and the stories I hear, I wouldn’t expect that to change anytime soon.
And given housing’s importance to every aspect of the economy, this tells me to be bullish on the continued rebound.
Good investing,
C. Scott Garliss
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Source: Daily Wealth