Underlying Housing Market Remains a Positive for Home-Related Stocks

As I've written in the past, a strong housing market drives results for home-related retailers like Home Depot, Lowe's, Restoration Hardware, Target, and Bed Bath and Beyond. Over the last two days, we've received existing home sales and new home sales data showing continued strength in the housing market. As we move into the all-important spring season, strong housing data should bode well for home-related companies. 

Housing Turnover +7% in February

For home product companies, existing home sales and new home sales are important because they are a proxy for how often people are moving. (Ideally, we would want data on renters moving as well, but I have yet to see that data anywhere.) Recall that when people move, they are more likely to spend money on home-related products. With that in mind, existing home buyers are significantly more important than new home buyers because they represent a significantly higher portion (~90%) of total home buyers. 

In February, new home sales were significantly stronger (+26% y/y) while existing home sales were modestly better (+4%). Overall, we end up with housing turnover modestly better at +7%, but not quite as strong as the new home sales number might suggest for February. Looking at overall trends, housing turnover is beginning to turn modestly positive after several months of negative turnover in 2014.

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Home Prices Increase +8% in February

February home prices also paint a rosy picture. After growing by double digits year-over-year in 13 of 16 months between 2012 and 2013, home prices have decelerated to low-to-mid single digit gains in 2014. In February, prices increased 8%, which bodes well for home product companies. Recall that rising home prices tend to drive more home-product sales because consumers are more likely to maintain and fix up their home when it's worth more.

With both prices and turnover growing at mid to high single digits in February, we may be positioned for a strong entrance to the all-important spring season, when a significant amount of home-related purchases are made.