How The Dollar Is Affected By The U.S. Housing Market

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Summary

The U.S. housing market has slowed, but remains stable.

Existing home sales, and home builder confidence are near multi-year highs.

The U.S. dollar has benefited from the recovery in the housing market.

Although the U.S. housing market has slowed during the second half of 2014, it does not look to be deterring dollar bulls from pushing the currency higher. PowerShares DB US Dollar Index Bullish (NYSEARCA:UUP) is up 12% since July, as is seen in the chart below.

Existing home sales in the U.S. have fallen over the last few months, but remain at multi-year highs. On Monday, the existing home sales figure for November came in at 4.93 million sales, below the previous month's revised reading of 5.25 million, as well as missing estimates for 5.2 million. Since 2010, the home sales figure has risen from 3.5 million homes, to now near 5 million, as is seen in the chart below. Moreover, low inventories are also contributing to the fall in home sales.

"November's steep decline probably does not signal the start of a weakening trend and in part reflected stubbornly low inventories, which touched an eight-month low, giving buyers limited options," according to a report by Reuters.

Data provided by Trading Economics

Similarly, like existing home sales, home builder confidence has pulled back recently, but remains near multi-year highs. In December, the NAHB Housing Market Index came in at 57, below last month's reading of 58, as well as missing estimates for 58. Back in 2011, the index was near 10, but now resides near 60, as is seen in the chart below. Moreover, analysts see the housing recovery in the U.S. as encompassing many different regional markets.

"Members in many markets across the country have seen their businesses improve over the course of the year, and we expect builders to remain confident in 2015," NAHB Chairman Kevin Kelly told Reuters.

Data provided by Trading Economics

Lastly, home prices have picked up since the financial crisis, but remain at historically low levels, while low mortgage rates are also benefiting home buyers. The chart below shows the annual change in home prices is currently just above 5%, below the 11% rate seen in back in 2005. Meanwhile, 30-year mortgage rates remain low, trending downward over the last 20 years.

While housing data have pulled back in recent months, it still remains near multi-year highs. Existing home sales and home builder confidence have strengthened in 2014, while home prices have accelerated, but remain below pre-financial crisis levels. With the U.S. housing market stabilizing, the dollar should remain supported, and continue to trend higher.

Data provided by the Federal Reserve

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