The housing numbers are all the buzz on trading floors. This morning traders are eagerly awaiting the sales numbers for new homes in the U.S. Usually this is not a huge number -- but lately it has taken on more and more importance. Here's why:
If the housing boom starts to slow, it's a sign that the interest rate hikes have done their job. Alan Greenspan and the Fed were quite concerned about the rate of borrowing. Home prices could not go up forever. Raising rates makes it more expensive to borrow money to buy a home. It also, and this is the really important part, makes it more difficult and expensive to borrow money against one's home. Borrowing against the equity in the home has been the U.S. Consumer's primary method of raising cash to spend in the economy.
When home sales start to slow, it's a sign that the US Consumer is going to have less to spend -- and when that happens, we can see the beginnings of lower interest rates. If we get lower interest rates, we will see the USD start to fall. And that's why we care about home sales.
