US: Housing Market Index

Tue Jan 20 09:00:00 CST 2015

Consensus Consensus Range Actual Previous Revised
Housing Market Index 58 56 to 59 57 57 58

Home builders continue to report solid conditions with the housing market index at 57 in January vs an upwardly revised 58 in December. January is the 7th plus-50 score in a row. January's strength is led by the most heavily weighted component, present sales, which held steady at 62. But the second most heavily weighted component, traffic, remains weak, down 2 points to 44 and reflecting a significant lack of first-time buyers in the new home market. The final component, future sales, did fall 4 points but remains very solid at 60. A look at regions shows the West well ahead at 65 with the South, which is by far the largest region for new home sales and roughly double the size of the West, at 55. The two smallest regions, the Midwest and Northeast, are at 60 and 43.

Though this report is very healthy, it hasn't been tracking well with the new home sales report which flattened noticeably late last year. It's a busy week for housing market updates with today's report followed by housing starts on Wednesday, FHFA house prices on Thursday and existing home sales on Friday. The Dow is moving off opening lows following today's report.

Market Consensus Before Announcement
The NAHB housing market index remained solid, at 57 for the December housing market index. Though slightly below November's 58 and on the low side of expectations, this was still the 6th reading in row that the index was above breakeven 50. December's strength was centered in expectations for future sales, at 65 versus November's 66, followed by current sales which are at 61 versus 62. Continuing to trail in the distance was the traffic component, unchanged at 45 in a reading that underscores the lack of first-time buyers in the housing market.

The National Association of Home Builders produces a housing market index based on a survey in which respondents from this organization are asked to rate the general economy and housing market conditions. The housing market index is a weighted average of separate diffusion indexes: present sales of new homes, sale of new homes expected in the next six months, and traffic of prospective buyers in new homes.

This report provides a gauge of not only the demand for housing, but the economic momentum. People have to be feeling pretty comfortable and confident in their own financial position to buy a house. Furthermore, this narrow piece of data has a powerful multiplier effect through the economy, and therefore across the markets and your investments. By tracking economic data such as the housing market index, investors can gain specific investment ideas as well as broad guidance for managing a portfolio. Whether the housing market index reflects new home sales or home resales, once a home is sold, it generates revenues for the realtor and the builder. It brings a myriad of consumption opportunities for the buyer. Refrigerators, washers, dryers and furniture are just a few items home buyers might purchase. The economic "ripple effect" can be substantial especially when you think a hundred thousand new households around the country are doing this every month. Since the economic backdrop is the most pervasive influence on financial markets, home sales have a direct bearing on stocks, bonds and commodities. In a more specific sense, trends in the existing home sales data carry valuable clues for the stocks of home builders, mortgage lenders and home furnishings companies.