Blog : The Housing Rally

by Ed Zwirn on July 24th, 2013

A new home is usually the most expensive thing an American will ever buy, while a penny stock is obviously closer to the other end of the price spectrum. But both are probably among the best indicators of investor confidence and appetite for risk.

Appetite for risk taking on the part of the investing public is a prerequisite for a penny stock market rally. And this is especially true when it comes to home buying.

Penny stock investors take note: Real estate, one of the main pillars of the U.S. economy, is apparently registering a strong showing.

According to this morning's release, sales of new single-family homes increased 8.3% in June to a seasonally adjusted annual rate of 497,000 units, the highest level since May 2008. The consensus had called for a 482,000 unit rate. This is the third-straight month of gains for this number.

Compared with June of last year, new single-family home sales were up 38.1%, the largest spike since January 1992.

This real estate runup has so far coincided with a bull market for everything from penny stocks to blue chips, a rally in which penny stocks and other small-cap shares have taken the lead. The runup appears strong enough at this point to offer support to the bull market for stocks, since the strong showing for home building and sectors that support it offers a strong domestic counterpoint to weak overseas economic performance.

When you buy a new home, you are expressing confidence not only in the neighborhood in question but also in your continued employment prospects and ability to pay. You are also consigning yourself to years of product purchases as you fill this home up with stuff and spend money to maintain it. People who buy new homes also are usually more likely to be starting families, and liable to pay for the bills, clothing and toys (not to mention penny stocks and other investments) needed to keep this family going.

There have been countless studies showing the huge spinoff effect of housing upon the other sectors of the U.S. economy. Directly following the people who profit off of the real estate itself are the companies and trades people who serve the needs these new homeowners. Beyond these direct correlations is the further knock-on effect created by optimism - whether in investing in speculative penny stocks or taking the plunge on a new home.