US: Housing Market Index

Mon May 18 09:00:00 CDT 2015

Consensus Consensus Range Actual Previous
Housing Market Index 57 56 to 58 54 56

The housing market index has long been signaling strength in the new home market that has yet to appear, but the signal is less strong in May. The index fell 2 points from April to 54 which is below the low-end Econoday forecast.

The dip reflects a 2-point slowing in present sales, which however remain well above breakeven 50 at 59, and a 1 point slowing for traffic to a very weak 39. Weakness in traffic has been a major feature of this report, underscoring the lack of first-time buyers in the housing sector. A plus in today's report is a 1 point gain in future sales, a component that is well out in front at a very strong 64.

Regional trends show the South just out in front, at 57 for the 3-month composite average, vs 55 for both the Midwest and West. The Northeast, at 41, always lags far behind in the new home market.

Despite strength in this report, construction and sales of new homes have been holding down the economy. Housing starts & permits for April, to be released tomorrow, are expected to bounce back from a depressed March.

Market Consensus Before Announcement
The housing market index has long been signaling strength in the new home market that has never appeared. Homebuilders have been very confident in the 6-month sales outlook despite unusually weak buyer traffic. The consensus is calling for a 1 point rise in the May report from an already strong April reading of 56.

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.