By John Persinos
As a farm girl from Kansas once said, there's no place like home.
A home is still the biggest asset of most Americans and remains integral to consumer confidence. When the housing market prospers, people feel wealthier. That's why recent positive housing sector data will reverberate well into 2021, despite the coronavirus pandemic.
Indeed, as I explain below, the COVID-19 outbreak is actually helping the housing sector. This momentum should continue even after the virus is contained, due to quickening economic growth and the Federal Reserve's long-term commitment to monetary easing.
Stocks closed mixed Wednesday, as investors shrugged off the vote in Congress to impeach President Trump for the second time during his tenure. Investors are looking past the political turmoil and toward the change of power that's scheduled to take place on January 20. The Dow Jones Industrial Average fell 8.22 points (-0.03%), the S&P 500 rose 8.65 points (+0.23%), and the tech-heavy NASDAQ climbed 56.52 points (+0.43%).
The U.S. Labor Department reported Thursday that new weekly unemployment claims increased more than expected last week to reach a five-month high. Initial jobless claims, for the week ended January 9, reached 965,000 compared to 789,000 expected and a revised 784,000 during the previous week. Investors took the data in stride, however. Stocks in pre-market futures were trading mostly higher.
I'm generally bullish for stocks in 2021. As the new year unfolds, we're likely to enjoy accelerating economic growth, a freer-spending consumer, a continuing housing market recovery, sustained ultra-dovish monetary policy, a resumption of corporate earnings growth, the dissipation of political rancor (eventually), massive fiscal stimulus spending, and better organized public health policy that's enhanced by vaccine roll-outs.
The wealth effect…
One positive effect of the coronavirus outbreak has been a surge in the housing market. Encouraged by historically low interest rates and stay-at-home quarantines, Americans have been busily renovating their living quarters to include home offices, kitchens, and home gyms.
While many people sought home upgrades, others fled urban apartments in favor of suburban neighborhoods or relocated to bigger domiciles. Another tailwind: millennials, a generation that had been slow to enter U.S. housing market, currently account for more than half of all new home loans.
This confluence of trends has resulted in a remarkable rise in housing prices, which bodes well for the overall economy. In healthy economies, people are more likely to buy new homes, and in weak economies, they're less likely.
Instrumental in generating a "wealth effect" among Americans is the steady rise in home prices since their collapse during the Great Recession of 2008-2009.
According to the National Association of Realtors, the median selling price for existing homes for November 2020 climbed 14.6% from the previous year, following October's 15.5% year-over-year growth. We haven't witnessed price appreciation this strong since 2005, when the U.S. was at the height of the housing market bubble (see chart).
According to Realtor.com, the December 2020 national median listing price was $340,000, up 13.4% compared to the same month last year.
Historically low housing inventory and rock-bottom mortgage rates will probably result in a robust home-buying season this spring.
By logical extension of the home sector rebound, construction-related equities are appealing now. The likelihood of substantial infrastructure spending under the incoming Biden administration underscores their appeal. However, as I've made clear in previous articles, other sectors (e.g., tourism, leisure and hospitality) will remain problematic for many more months.
Watch This Video: Beware of Falling Knives
I'm optimistic about the stock market's prospects this year, but the pandemic continues to cast a cloud over the economy, as reflected by Thursday's worse-than-expected initial weekly jobless claims. During the COVID-19 crisis, the ability to precisely pick your investment spots is more imperative than ever.
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John Persinos is the editorial director of Investing Daily. You can reach John at: mailbag@investingdaily.com. To subscribe to his video channel, follow this link.
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