US: Housing Market Index

Mon Mar 16 09:00:00 CDT 2015

Consensus Consensus Range Actual Previous
Housing Market Index 56 50 to 57 53 55

The lack of first-time buyers is an increasing negative for the new home market, evident in the housing market index for March where growth slowed 2 points to an 8-month low of 53. The traffic component of the index again shows particular weakness, down 2 points to 37 which is a 9-month low and directly reflects the lack of first-time buyers.

The other 2 components of the report remain well over 50, at 58 for current sales, which however is down 3 points from February for a 5-month low, and at 59 for future sales which is unchanged.

Regional composite data show the Midwest out in front at 61 for a striking 13 point surge in the month followed by the largest region, the South which is down 2 points to 54. The West, which is also a very important region for new homes, shows an 11-point decline to 53 with the Northeast, which is by far the least important market for new homes, down 7 points to 39.

Why are first-time buyers not showing interest in buying a home? Perhaps it's tied to the bubble collapse in 2008, one that may have lowered the appeal of housing as a lifelong investment. This report always precedes the housing starts report by 1 day. Tomorrow's report on housing starts & permits is expected to be no better than mixed.

Market Consensus Before Announcement
The NAHB housing market index posted in February at an index level of 55 versus 57 in January. The index has averaged 56 since first turning into the plus column in July last year. But a negative in the report was a further drop in the buyer traffic component, down 5 points to 39 for the lowest reading since July. Low traffic reflects lack of first-time buyers in the market, specifically young households. The expectations component, which tracks future sales, was unchanged at 60 with present sales down only 1 point to 61, both strong readings.

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.