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At 10:00 a.m. ET today, the National Association of Realtors will come out with its existing home sales numbers for last month. The report should help us get a clearer sense of activity in the housing market and economy.

In December, existing-home sales rose a seasonally adjusted 5% from the previous month, or 3.6% year over year. The market is expecting to see the figure edge up slightly to 4.63 million in January. We'll also get an update on how large the housing inventory is, and what is the median price.

Obviously, the housing glut has been an issue, not just for homebuilders, but also for the financial system and economy at large. However, we've been seeing fairly good home-sale numbers since late last year. A continuation of that trend would obviously be good news for troubled names like Bank of America (NYSE: BAC  ) , which has more than $600 billion in residential mortgage and other consumer loans and a struggling mortgage division, and even for JPMorgan Chase (NYSE: JPM  ) , which has a $400 billion chunk of consumer and residential loans, despite its much smaller residential mortgage unit.

But the rest of the Dow (INDEX: ^DJI  ) -- particularly its cyclical- and U.S. consumer-oriented components -- stand to gain from an improving real estate market.

Here's why.

In ordinary recessions, the Federal Reserve can lower interest rates to help restimulate economic growth and fuel recovery. The recent recession was so severe, though, that the models the Fed uses prescribed deeply negative interest rates. Obviously, you can't cut rates below zero, so that's a problem. But another unusual issue that hasn't gotten as much attention (though the Fed and White House have begun to focus on it more in recent months) has been the fact that, with so many banks too weak or too reluctant to extend credit, and so many homes underwater, mortgage activity was weak. And if people aren't buying homes, they're not getting the full benefit of low interest rates. That's a drag on the recovery.

Residential mortgage REITs like Annaly Capital (NYSE: NLY  ) and American Capital Agency (Nasdaq: AGNC  ) have been some of the biggest beneficiaries of this dilemma. They get to enjoy the wide interest-rate spreads that go along with low short-term rates, without having to deal with the high prepayment levels you'd ordinarily see. Annaly recently said it expects this phenomenon to persist, but if home homebuyers start getting credit again and sales pick up, that'll be something to keep an eye on.

For the rest of the market, though, declining levels of household debt, more available credit for creditworthy borrowers, and cheaper interest payments can't come soon enough. And today we'll get to see another piece of how our tentative recovery is progressing.

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Ilan Moscovitz doesn't own shares of any company mentioned. The Motley Fool owns shares of Bank of America, Annaly Capital Management, and JPMorgan Chase. Motley Fool newsletter services have recommended buying shares of Annaly Capital Management. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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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  • Report this Comment On February 28, 2012, at 12:54 PM, 1batitude wrote:

    I get tired of ready basically the same housing information over and over again! People with good credit, and who already own a house (and are not underwater), are not refinancing due to the high costs of doing so. Most likely, they refinanced to a relatively low rate in the last few years. In my example, I have a 30 year mortgage at 4.75% - I am willing to refinance to a 15yr at 3%, but I can't get it without paying a lot of closing costs and points. People who have a house are most likely not going to buy another one. So the people in the market who actually CAN and are willing to buy a house is a very small number today. It is a great time to buy - I just don't believe that there are very many buyers, and there won't be for quite some time. We need more than low house prices and low interest rates - we need political stability, job growth, and we need to know what our future taxes are going to be to determine what we want to spend.

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10/28/2016 4:33 PM
^DJI $18161.19 Down -8.49 -0.05%
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Bank of America CAPS Rating: ****
JPM $69.11 Down -0.12 -0.17%
JPMorgan Chase CAPS Rating: ****
NLY $10.22 Up +0.03 +0.29%
Annaly Capital Man… CAPS Rating: ****