US: Housing Market Index

Tue Dec 15 09:00:00 CST 2015

Consensus Consensus Range Actual Previous
Housing Market Index 63 61 to 68 61 62

Home builders are reporting strong but slowing activity, at 61 for the December housing market index vs 62 and 65 in the prior two months. Both present sales, at 66, and 6-month sales, at 67, eased in the month. Traffic, the third component and one that has lagged badly this cycle, is down 2 points at a sub-50 reading of 46. Weakness here reflects lack of first-time buyers in the new home market.

Turning to regional data, the highest composite score by far goes to the West, at an enormously strong 78, followed by the South, at 62. Two less watched regions for new homes, the Midwest and North, trail at 55 and 49.

The new home sector has been trending higher this year but has been volatile with gains often less than convincing. Housing starts in tomorrow's report for November are expected to bounce higher following a depressed October while permits, which bounced higher in October, are expected to ease.

Market Consensus Before Announcement
The housing market index has been very solid though the November report did come in well under expectations, at 62 for a 3 point loss. Both future and present sales slowed in November but not traffic which, though still lagging this cycle, has been showing new life thanks to greater interest from first-time buyers. The Econoday consensus is calling for a 1 point rebound in December to 63.

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.