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Last updated on February 3rd, 2021 at 11:39 am
The behavior of the forex market effects, both the existing and new-home sales in the United States.
During the last recession, the housing and mortgage sectors took a hard hit and are yet to recover fully from its damaging impact.
On top of that, they are influenced by the country’s interest policies, a factor that is broadly believed to have contributed to the decline of the United States’ economic growth in recent years.
So how does this affect the foreign exchange markets?
The current home sales report by the US Census Bureau, which keeps track of the annualized number of existing residential homes that were sold during any given month.
It serves as an important indicator of the current strength of the country’s economy and particularly, the strength of the local currency, the USD.
When making predictions about the market behavior of the US dollar, US home sales reports can be used.
When the annualized number of sold existing residential properties exceeds the expectations, the USD currency may exhibit bullish behavior.
Its price might go up due to the higher levels of confidence in the housing market, which, in turn, leads to an increase in the number of potential investors.
Similarly when there is a decline in the annualized number of existing properties, and if the results are below expectations, it might hurt the USD value and cause the currency to behave bearishly, i.e. bring a decline in the USD price.
The report that gauges the annualized number of new single-family residential properties that are sold or put up for sale is released on a monthly basis and measures the number of new homes sold within the previous month.
It typically has a more pronounced effect when released before the Existing Home Sales report so there can be a comparison between the two.
Whenever the readings exceed the forecasts and sales data, it reflects onto the USD and causes it to behave bullishly.
And vice versa, if the opposite occurs and the figures are below expectation, this should be interpreted as bearish for the US dollar.
One also needs to be aware that there is a strong correlation between the USD exchange rates and the current pricing of housing properties.
Because of the fluctuations in foreign exchange rates result from a broad spectrum of economic factors, including consumer confidence, changes in the gross domestic product of a country, its monetary policies, and inflation and this greatly impacts the real estate market.
When the US dollar strengthens, it tends to sell at a higher price against weaker currencies, so if a foreigner wants to buy a home in the United States, they most likely will have to spend more of their local currency to conduct the purchase in USD.
The housing market data is used for fundamental analysis. A significant decline in home sales in the US can result in what is known as a balance-sheet recession. The latter may have a pronounced negative effect on the local economy.
This phenomenon is observed whenever there are significant debts in the private sector and people are forced to save money rather than spend or invest it.
And the balance-sheet recession would also negatively affect the exchange prices of the USD on the Forex markets. The value of the USD will drop against the prices of foreign currencies.
Reference Source: Propertywire
