Housing data to give clues on U.S. economy

This week we get a few important reads on the current state of the U.S. housing market.

On the macro front, data for two housing indicators are out this week. U.S. Housing Starts for the month of April is released on Tuesday at 8:30am, and U.S. Existing Home Sales is out Thursday at 10am. After a rough start to the year, with adverse winter weather as the #1 excuse, Housing Starts are expected to come in at 993,000, a month-over-month (MoM) increase of 7.2% and the biggest lift since July. Existing home sales also saw suppressed figures as the year opened, but the latest March reading showed the housing market heading into the spring with new momentum. The March figure came in at the best rate since September 2013, and MoM growth was the strongest since December 2010. For April, the Estimize community is looking for 5.2M, a modest increase of 0.8%, and the second month above the five million mark after subpar readings in January and February.

In regards to earnings, home improvement retailers Home Depot (HD) and Lowe’s (LOW) report first quarter results on Tuesday and Wednesday. The Estimize community is expecting both to surpass the Wall Street earnings consensus by $0.02; with Home Depot anticipated to report EPS of $1.17 and Lowe’s to report $0.76. This puts Home Depot on course to post five consecutive quarters of double-digit earnings growth, while this would be Lowe’s 12th quarter. Top-line growth also looks strong for these two.

Both retailers benefited from a strong housing market in the fourth quarter, but harsh winter weather may suppress results for the first quarter of 2015. On the bright side, consumers have more money in their pockets due to an improving jobs situation and lower oil prices. While we haven’t seen as much of that discretionary income handed to retailers as was expected in this environment, frugal fatigue is setting in and signs of spending are picking up, especially on large ticket items. When home prices appreciate as they have been, consumers typically invest in their properties. Home Depot should steal some market share from Lowe’s this quarter as they deal with negative headlines from carrying Chinese laminate flooring that contained formaldehyde, a possible carcinogen. Home Depot also only has domestic locations, while Lowe’s has stores in Mexico and Canada and could suffer from the stronger dollar.