US: Housing Market Index

January 18, 2017 09:00 CST

Consensus Consensus Range Actual Previous Revised
Housing Market Index 69 67 to 71 67 70 69

Home builders are as confident as they have been since the sub-prime boom 10 years ago. The housing market index in January is 67, down just 2 points from a revised and cycle high of 69 in December.

All the components are strong but strength at the rear is the big story. Traffic held over 50, edging only 1 point lower to 51 for, along with December, the only plus-50 readings in 11 years. Traffic had been very low all cycle and this improvement is an indication of new demand for new homes.

Sales readings remain very high, at 72 for current sales and 76 for sales 6 months out. These readings hint at strength for tomorrow's housing starts & permits report.

The West remains the favorite region for home builders with a 3-month average score of 79. The South follows at 67, the Midwest at 64, and the Northeast far back at 52 but coming out of sub-50 contraction.

The rise in mortgage rates isn't denting any of the enthusiasm among home builders for what they see ahead as another strong year, perhaps an even stronger year.

Market Consensus Before Announcement
The housing market index jumped an unusually strong 7 points to 70 in December, a new cycle high and pointing to momentum ahead for the new home market. Even before December's jump, the index had been showing outstanding strength reflecting strong sales expectations and also long delayed improvement in traffic. Traffic was December's highlight, rising to 53 for the first plus-50 expansionary score in 11 years in a tangible indication of rising demand. The Econoday consensus for January calls for only very little give back, down 1 point to 69.

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, sales 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.