Housing market needs to improve before retail takes off

The direct link between housing market growth and retail sales was given another nod to in the June quarter report of Deloitte Access Economics. The report emphasised that the doldrum in retail turnover will only improve when the housing market finally kicks into gear, and strong growth can be seen across the capital cities.

Recently, Sydney has seen higher auction clearance rates and Perth still is on the rise in median prices due to the resources industry, despite the mining downturn. However, apart from the immediate media attention that is attracting, the housing construction industry still needs more.

According to the Australian Bureau of Statistics (ABS), total dwelling units building approvals have risen in seasonally adjusted terms by an estimated 10.8% to 14,304 dwellings between June and July 2013. For the 12 months up to July 2013, the seasonally adjusted figure rose 28.3%. The majority of the gain was from private sector houses.

Build approvals is a leading indicator since the homes are not built yet, yet apart from some speculative building, it reveals the expected trend that the housing industry itself has for the near-term.

Another statistic to look at would be housing finance, which shows the financial commitment people are taking on currently to buy a dwelling. Between June and July 2013, the value of dwelling finance in total rose 1.1% from $24.12 billion to $24.18 billion, or an annualised growth rate of 13.2%.

The number of investment homes financed has been rising at a faster rate than that of owner-occupier dwellings financed, though on sheer numbers owner-occupier dwellings make up 64% of the homes financed.

If the housing market is going to turn up, then investors want to look at retail companies that will furnish these homes like JB Hi-Fi (ASX: JBH) and Harvey Norman (ASX: HVN), as well as department stores Myer (ASX: MYR) and David Jones (ASX: DJS). Also, don’t forget those that supply building materials and fixtures for the homes — Reece (ASX: REH) for plumbing and GWA Group (ASX: GWA) for bathroom, kitchens, heating and cooling.

Foolish takeaway

Housing figures are an important leading indicator for home furnishing retailers and building material suppliers, so keeping an eye on them can help investors get a step ahead of the market. Still, before you invest any of your hard-earned cash, it’s important to invest your time in researching which companies stand to benefit the most in the long term.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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