In a clear sign that the housing industry is on a firm footing, existing home sales surged to their highest level since Feb 2007 last month. A strong labor market has led to an increase in income levels which is leading to a surge in demand for housing. Home prices are likely to rise as a result, which is a desirable outcome for the housing sector at the moment.

Since economic fundamentals remain strong and the labor market only looks stronger, the housing sector is likely to go from strength to strength in the near future. Adding housing stocks to your portfolios at such a time looks like a particularly profitable proposition.

Record Sales Experienced in March

During the month of March, existing home sales increased by 4.4% to a seasonally adjusted pace of 5.71 million. This was significantly higher than the consensus estimate of 5.58 million units. According to the National Association of Realtors (NAR), this was the sharpest pace of sales witnessed in 10 years. The NAR also said that on an average, properties were available on the market for 34 days last month, lower than the 45 day period witnessed in February.

Additionally, the total number of housing units increased by 5.8% to 1.83 million units. However, the current level of supply seems to be insufficient to meet this rise in demand, a trend borne out by the 6.6% year over year decline in housing inventory.A demand supply mismatch of this kind is likely to result in higher prices, which is a major positive for the housing sector.

Data Dips But Remains Promising

At first glance, the existing home sales report stands in sharp contrast to the rest of the housing data released this month. In March, housing starts declined 6.8% to a 1.22 million, according to data released by the Department of Commerce on Apr 18. This is lower than the consensus estimate of 1.24 million units.

But the report has a silver lining, since building permits increased by 3.6% to a 1.26 million pace. This also represents a 17% year-over-year increase and indicates that housing starts are likely to increase substantially in the near future.