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Housing market concerns begin to emerge

1 month 2 weeks 17 hours ago Wednesday, February 24 2021 Feb 24, 2021 February 24, 2021 6:33 AM February 24, 2021 in News
Source: CNN

Though the housing market appears to be doing well, some have expressed concerns as to how much longer its strength can last, CNN reports.

The news outlet says Home Depot reported earnings and sales that topped Wall Street's forecasts Tuesday. Lowe's, likewise, reported better-than-expected earnings and sales on Wednesday morning, and CEO Marvin Ellison said in a statement that sales were lifted thanks to "broad-based demand driven by the continued consumer focus on the home."

Even so, rising interest rates could eventually be a problem for Home Depot and Lowe's. Despite the fact that the Federal Reserve is likely to keep its key short-term rate near zero for the foreseeable future, longer-term bond yields have started to spike. Additionally, mortgage rates are affected more by the 10-year Treasury than Fed rates.

In a possible sign of things to come, Home Depot failed to provide any guidance for 2021. Its shares fell 3% on the news.

"Increased demand for single-family homes has driven housing turnover and home price appreciation," said Home Depot chief financial officer Richard McPhail during a conference call with analysts Tuesday. "However, significant uncertainty remains with respect to the course of the pandemic, the distribution of vaccines, short-term fiscal policy and how these developments will impact the broader economy and ultimately, consumer spending."

At the moment, it seems consumers are not too concerned as the most recent housing market numbers continue to paint a healthy picture. CNN says consumers are eager to find more space and are willing to pay ever higher prices for homes.

In this regard, S&P/Case Shiller and the Federal Housing Finance Agency reported a more than 1% monthly increase in their latest housing price reports Tuesday.

"Both surveys suggest strong momentum and support our view that the housing market remains in solid footing," said Blerina Uruci, an economist with Barclays, in a report.

According to CNN, the housing market strength is helping to lift the prices of lumber too, which has also boosted Home Depot. Ed Decker, the retailer's president, said during the earnings call that "during the fourth quarter, pricing for both framing and panel lumber" surged, helping to lift overall sales.

Forestry companies have benefited from the housing boom and soaring lumber prices as well.

The news outlet says that two timber exchange-traded funds with the ticker symbols of WOOD and CUT -- the iShares Global Timber & Forestry and Invesco MSCI Global Timber ETFs -- are each up more than 5% this year and have both gained more than 25% in the past 12 months.

Builders are still confident that the housing boom won't reach its end just yet.

Toll Brothers reported earnings and sales after the market closed Tuesday that easily beat analysts' expectations, CNN reports.

"The housing market remains very strong, driven by a tight supply of new and existing homes for sale, favorable demographic trends, low mortgage rates, and a heightened appreciation for home ownership," said Toll Brothers CEO Douglas Yearley, Jr. in the earnings release. He added that he anticipates these market conditions "to continue for the foreseeable future."

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