Forex Flash: US housing data helped mitigate market slide – Goldman Sachs

Stronger than expected housing data in the US this week helped to arrest a market slide, and reinforced the importance of the housing sector for the US outlook. According to the Economics Research Team at Goldman Sachs, “Housing activity also remains an important marker across the developed world, with nominal house prices recovering, due in part to local cyclical recoveries and in part to the transmission abroad of exceptionally low US rates.”

This week, we set out to understand the likely impact of the housing cycle’s evolution on asset prices. “We find that house price moves are closely tied to phases of the US housing cycle and that, within the equity market, consumer discretionary and financial sector returns are also quite responsive to the cycle’s phases.” the team adds.

We also find that housing cycles tend to be quite local: unconnected to other countries’ housing cycles and unconnected to global cyclical indicators. While local home prices respond to phases of the local housing cycle, outside of the US local equity markets have tended not to.