US: Housing Market Index

Tue Nov 17 09:00:00 CST 2015

Consensus Consensus Range Actual Previous Revised
Housing Market Index 64 62 to 65 62 64 65

The housing market index from the nation's home builders shows weakness, at 62 for November and missing the Econoday consensus by 2 points. And compared to a revised October, the index is down 3 points. Yet readings in the report, though slowing, remain solid and one important detail is favorable.

Of the report's three components, future sales are down a sizable 5 points but the level is still in the seventies, exactly at 70. Present sales, which is the most heavily weighted component, fell 3 points to 67, also still a strong level.

The positive in the report is a 1 point rise in traffic, a component which, at 48 in the latest report, has been lagging badly but is getting closer to the breakeven 50 mark. Weakness in this reading has been reflecting lack of first-time buyers in the market.

Turning to regional data, the highest composite score goes to the West, at an enormously strong 77, followed by the South, at 62. Two less watched regions for new homes, the Midwest and North, trail at 59 and 52.

There are positives in this report but the decline in both future and present sales is a reminder that both starts and permits for single-family homes have been slowing. Despite the rise in traffic, this report probably pulls back the housing outlook by a degree.

Market Consensus Before Announcement
Strength for the new home market has been the signal from the housing market index since back in June, and continued strength is expected for the November report with the Econoday consensus calling for a steady reading of 64. Future sales have been the leading component in this report, pointing to gains ahead for single-family permits. Holding back the index has been the traffic component where lack of first-time buyers is a major negative.

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.