US: Housing Market Index

Mon Oct 19 09:00:00 CDT 2015

Consensus Consensus Range Actual Previous Revised
Housing Market Index 62.0 60.0 to 63.0 64 62 61

A strong gain in current sales gave a major boost to the housing market index which, coming in at 64 for October, topped Econoday's high-end forecast for the highest reading since 2005. Current sales, the most heavily weighted component, rose 3 points to 70, strength that points to further gains for new home sales. Pointing to gains for permits and for future sales is a striking 7 point gain to 75 in expected sales six months from now. Still slightly sub-par traffic, unchanged at a sub-50 level of 47, isn't holding down sales, though the lack of traffic does point to lack of participation from first-time home buyers. Otherwise, this report is a standout for the housing outlook and will raise expectations for strength in tomorrow's housing starts & permits report.

Regional data is led by the West, a key sector for new homes where the composite score is up a very sharp 11 points to 76. Following behind is the South, which is the largest sector for new homes where the index is up 1 point to 67. The Midwest follows at 59 with the Northeast, which is by far the smallest region for new homes, continuing to lag at 47.

Market Consensus Before Announcement
The housing market index has been running at 10-year highs and steady news is expected for the October reading, at a consensus 62 for no change. The only lagging component has been traffic but this has been on the climb in recent reports. Supply of new homes on the market is low and interest rates are low, two central positives to motivate builders.

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.