CHICAGO (Reuters) - Results from Home Depot and Toll Brothers bode well for a continued recovery in the housing market this year, thanks largely to an improving jobs market and low petrol prices, industry officials and analysts said.
On Tuesday, the world's largest home-improvement chain, Home Depot, posted its strongest-ever fourth quarter in terms of sales growth, driven by demand for home renovations. Luxury home builder Toll Brothers also lifted its full-year home delivery forecast. Shares of both companies rose nearly 4 per cent.
The pickup in home renovations, reflected by demand for paint, flooring and appliances, can be explained in part by the improved financial position of many households over the past three months due to lower petrol prices, said Mr Neil Saunders, chief executive of retail research firm Conlumino.
The improved picture for many US households is supported by data that measures consumer spending on new homes and home improvement, he said. Private residential fixed investment topped US$577 billion in the fourth quarter of last year, the highest amount since the fourth quarter of 2007 when it stood at US$616.4 billion.
This comes even though total homes sold decreased in 2014, Mr Saunders said.
He cautioned, however, that the sudden spurt in renovations could be short-lived if petrol prices continue to inch up. Prices have risen every day for the past 28 days to an average of US$2.30 for a gallon, up from a low of US$2.03 last month.
US home prices also rose in December and experts said sales and prices of existing homes remained close to normal but construction of new home sales remain weak.
But analysts said overall housing demand would continue to show an uptick, helped by growth in the number of jobs, higher wages and the recent federal initiatives to increase mortgage availability.
For example, Toll Brothers is finding it easier to raise prices of its homes now and said there are more buyers in its key markets including Arizona, Colorado, Nevada and Washington.
Another sign is the monthly principal and interest payments for single-family homes as a percentage of disposable income. It stood at 23 per cent in December, much lower than the average of 35 per cent since 1990, said RBC Capital Markets analyst Robert Wetenhall.
Mr Wetenhall expects wage inflation in the second half of 2015 to more than offset higher interest rates and a low single-digit price appreciation in home prices. This, he said, adds to both affordability and the broader outlook for housing demand this year.