Readers Question: Which businesses are likely to benefit from a recovery in the housing market?
I think it is a little premature to talk of a recovery in the housing market. But, nevertheless when there is a recovery in the housing market the following firms will benefit.
- House Builders. At the moment there is a surplus of unsold houses. This is contributing to falling profitability for many large homebuilders. A recovery in the housing market would benefit these firms very significantly.
- Mortgage Lenders. The Council of Mortgage Lenders in the UK have reported a significant drop in mortgage lending. This reduces the profitability of banks and building societies who lend money to potential home buyers. An upturn in the housing market would increase demand for mortgage products enabling profitable mortgage loans to be made. If conditions in the housing market improved, mortgage lenders would see an additional benefit of declining mortgage defaults which has been causing significant losses to mortgage lenders and banks who bought the securitisation products.
- Estate Agents. Estate agents benefit from the number of transactions and the value home sales. An upturn would increase the number of house sales and increase the value of houses meaning that their % share would improve.
- Firms Who Take Out Loans. The credit crunch has caused the cost of borrowing to increase. If the housing market recovers and the number of bad debts falls, then the cost of borrowing is likely to return to normal levels. This will benefit all firms who are borrowing for investment.
- White Good Manufacturers. Related to buying house is the household goods that are essential parts of a house. An upturn in the housing market is likely to see increased demand for white goods like fridges, cookers and furniture.
- General Macro Economic Benefits. A significant benefit of a recovery in the housing market would be improved economic growth. Falling house prices contribute to falling consumer spending. If house prices recover it will restore consumer confidence and increased Aggregate demand and growth. This general economic recovery will benefit all firms, but particularly firms who produce luxury goods.