Housing Recovery Slows, but Markets Charge Higher

On a day when housing numbers seem poor, Home Depot is up big. The housing recovery may be slowing, but there's still good news hidden in today's numbers.

Apr 22, 2014 at 3:30PM

More data showing a slowing housing market hasn't stopped the Dow Jones Industrial Average (DJINDICES:^DJI) and other stock indexes from charging higher today. The National Association of Realtors said that the pace of existing home sales slowed 0.2% last month to a seasonally adjusted annual rate of 4.59 million, while the Federal Housing Finance Agency said home prices were up just 0.6% in February. That equates to a 6.9% year-over-year rise, which is lower than late 2013.  

Nonetheless, the Dow was up 0.55% in late trading. Even housing-centric companies such as Home Depot (NYSE:HD) haven't been affected by these seemingly negative reports.

A slowdown in housing should be expected
One of the dangers of a rapidly rising housing market is a bubble like we saw in the mid-2000s. So a slowdown in growth isn't bad as long as it's not an all-out crash. As you can see below, the current situation is anything but a crash, and housing prices are still up year over year despite the slower pace of sales in the last six months.

US Existing Home Sales Chart

US Existing Home Sales data by YCharts.

One of the drivers of slower sales is rising interest rates, which make homes less affordable for lower-income buyers. Higher rates have also been expected, so this isn't a shock to the market today.


Slower home sales aren't necessarily bad for Home Depot's investors.

For home improvement companies such as Home Depot, which was up 2.3% today, the pace of home sales has less impact on sales than the health of the overall economy. They make money from people who are able to spend to fix up their homes, so falling unemployment and rising GDP are also key to their well-being.

In fact, one reason Home Depot is up today is an upgrade to outperform from BMO Capital Markets.

It's important to keep economic data on housing in perspective as reports come out. Slowing sales and a lower rate of home value growth isn't bad if the underlying housing market is healthy. That seems to be the case now, and Home Depot will continue to sell goods to consumers fixing up existing homes. That growth thesis is still intact today.

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Keeping a steady hand as economic and earnings numbers are released is one of the toughest things for an investor to do. Warren Buffett has made billions through his investing and we could all learn something from him. Through the years, Buffett has offered up investing tips to shareholders of Berkshire Hathaway. Now you can tap into the best of Warren Buffett's wisdom in a new special report from The Motley Fool. Click here now for a free copy of this invaluable report.

Travis Hoium has no position in any stocks mentioned. The Motley Fool recommends Home Depot. 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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