After spending a bit of time in the red, the Dow Jones Industrial Average (^DJI 1.73%) is trekking back in positive territory. Though some mixed signals from the housing market may be throwing off some investors, stocks that rely on the strong rebound we've been seeing are still headed higher. As of 11:45am EDT, the Dow is joining them with a modest 26 point gain.
Good or bad?
The sale of existing homes in June unexpectedly fell 1.2%, while analysts had expected another rise after two months of higher sales figures. The slide in sales had no effect on the recent surge in home prices, which are up 13.5% since last year due to more buyer demand and dwindling inventory.
Though there is an argument for the negative effect of rising interest rates on the sales for June, when speculation of the Fed's stimulus-tapering sent rates up 0.53 percentage points, the lack of a sufficient balance between buyer demand and inventory may also be the culprit. The current levels of inventory of existing homes rose in June to a 5.2-month supply based on the rate of sales for the month. But this still falls short of the six-month supply economists view as the right balance between inventory and demand.
Whatever the cause, June's drop in sales does not indicate a slowdown of the housing market's recovery. And the companies that rely on strong home sales and buyer demand aren't taking a breather.
Need a loan?
Of course, the banks and their investors are keeping a close eye on the housing market's status, as new mortgage lending is a big part of their revenue stream. Though all of the banks, with the exception of Wells Fargo (WFC 2.28%), noted a slowdown in new mortgage originations during the second quarter, the rising demand from new buyers is a positive sign for their mortgage operations. Bank of America (BAC 2.55%) has been trying to shed some of its bad image among mortgage holders in order to gain a bigger slice of the mortgage-market pie. JPMorgan (JPM 3.02%) is the second-largest mortgage originator, but its 10% market share pales in comparison to Wells' 29%.
The continued climb of home prices, despite a slight break in the higher sales trend, is still a welcome sign for the banks. As home prices rise, loan balances rise and more interest can be generated -- even as interest rates remain low. And with the prospect of historically low interest rates going by the wayside in the coming year or so, new buyers may be ready to jump in to secure what low rate remains.
"Mixed?" Really?
Though it may seem that a slowdown in sales is a bad sign -- especially during the summer months, when home-buying is usually ripe -- businesses can see both sides of the coin. And because there are multiple factors helping the housing recovery maintain its momentum, the one slip won't derail the entire sector. Long-term investors should see this morning's news as a good sign for the housing market, despite what some initial reactions may have suggested. And as far as stocks go, be sure to watch the businesses that rely on this housing data and are focused on the opportunities, rather than the bad numbers.
