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Why housing starts news may move markets

Adam Shell
USA TODAY
  • Figures on June housing starts out Wednesday
  • Analysts expect an increase of 4%25 over last month%2C according to UBS
  • Slowdown in housing could hamper stocks

NEW YORK -- The housing crash brought the stock market down with it in 2008 and early 2009. But the rebound in real estate in recent years has been a key driver of the stock market rally. With long-term interest rates on the rise, Wall Street is keenly interested to see if housing can remain a stock market tailwind despite the fresh headwind of rising rates.

Outside of the New York Stock Exchange.

Another peek into the health of housing comes Wednesday, with the release of June housing starts. In May, starts jumped 6.8% to a seasonally adjusted annual rate of 914,000, rebounding from a nearly 10% drop to 856,000 in April. Analysts expect an increase in new groundbreaking for homes to increase by 4% to 950,000, according to UBS.

Rising home prices make people feel wealthier, and the so-called wealth effect can create a positive feedback loop that does wonders for the economy. For instance, rising home prices not only make folks feel richer, but they grease the selling market because they enable some to move up to bigger houses. And heightened real estate activity means more purchases of home-related goods, such as rugs, furniture, appliances and even home renovations.

The interest rate on a 30-year fixed-rate mortgage jumped to 4.51% as of July 11, according to mortgage giant Freddie Mac, up from 3.35% the week of May 2.

It will be interesting to see how the rise in mortgage rates has affected new home starts. A slowdown in housing could dismantle the stock rally brick by brick.

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