Housing prices and activity have commonly been linked to consumer confidence.

When consumers are optimistic about the future, they tend to spend on big ticket items. That could mean finally buying a house or starting a home improvement project.

While housing prices fluctuate because of supply and demand, investors need to look at the interest rate environment we’re currently in as well.

Philippine Markets Newsletter:
The Monday Macro Report
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Buying or building a house is a major financial decision for most consumers, and it’s not something they decide on in an instant.

This is one of the reasons investors look at statistics in housing to figure out where we are in the economy.

It can tell investors when they might expect improvement in the economy. An upswing in housing starts signifies confidence in the economy as more people spend on big ticket items and the construction industry starts experiencing a boom.

It can also tell investors when to expect increased consumer credit activity. Most individuals finance their home purchases through borrowing from banks or other lending institutions. Not only that, consumers tend to buy durable goods like home appliances also on credit.

Thus, during an economic downturn where the cost of borrowing money is usually low, it often leads to buying a house becoming more economical than renting one.

This creates a cyclical pattern, where the allure of low-interest rates attracts prospective homebuyers, prompting home builders to construct houses in anticipation of increased demand.

When interest rates were low in 2020-2021, as soon as the economy opened up from the COVID-19 lockdowns, we saw a spike in housing starts. Growth in construction and durable equipment followed suit shortly after.

Then, when interest rates started rising, unsurprisingly, housing starts declined.

Housing starts tallied at 25,411 in the third quarter of 2023, a 24.8% decrease compared to the same quarter the previous year, at 33,796 starts. This has been the fourth consecutive quarter housing starts declined starting December 2022, confirming a downtrend.

Still, housing starts in the Philippines constituted the majority of the total constructions for the third quarter at 67.1% in 2023, with the remaining 33% being non-residential starts.

Hence, for Filipino investors, this is probably not a good time to buy investments related to the housing market.

With interest rates still remaining elevated at 6% levels, it makes the cost of borrowing expensive, which is one of the reasons new building activities—and consumer confidence—is slowing down.

About the Philippine Markets Newsletter
“The Monday Macro Report”

When just about anyone can post just about anything online, it gets increasingly difficult for an individual investor to sift through the plethora of information available.

Investors need a tool that will help them cut through any biased or misleading information and dive straight into reliable and useful data.

Every Monday, we publish an interesting chart on the Philippine economy and stock market. We highlight data that investors would normally look at, but through the lens of Uniform Accounting, a powerful tool that gets investors closer to understanding the economic reality of firms.

Understanding what kind of market we are in, what leading indicators we should be looking at, and what market expectations are, will make investing a less monumental task than finding a needle in a haystack.

Hope you’ve found this week’s macro chart interesting and insightful.

Stay tuned for next week’s Monday Macro report!

Regards,

Angelica Lim
Research Director
Philippine Markets Newsletter
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