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Economy in Brief

U.S. Home Builder Sentiment Eases Again in March
by Sandy Batten  March 17, 2020

The Composite Housing Market Index from the National Association of Home Builders-Wells Fargo fell 2.7% m/m to 72 in March from 74 in February for the third consecutive monthly decline. Still, the index is up 16.1% from a year ago and continues to fluctuate near its highest level in two decades. A reading of 73 had been expected in the INFORMA Global Markets survey. The NAHB figures are seasonally adjusted. Over the past 15 years, there has been a 70% correlation between the y/y change in the home builders index and the y/y change in new plus existing home sales.

The index of present sales conditions declined 2.5% m/m to 79 (+16.2% y/y). The index of expected conditions in the next six months fell 5.1% m/m to 75 (+4.2% y/y), its lowest reading since September. The index measuring traffic of prospective buyers slipped 1.8% m/m to 56 (+27.3% y/y), its second consecutive modest decline from January’s expansion high of 58.

It should be noted that half of the builder responses in the March index were collected prior to March 4, so the recent stock market declines and the rising economic impact of the coronavirus will likely be reflected more in next month’s report. Overall, 21% of builders in the survey reported some disruption in supply due to virus concerns in other countries, notably China. However, the incidence is higher (33%) among builders who responded to the survey after March 6, indicating that this is still an emerging issue.

Regional readings were generally lower in March. The index for the Northeast fell 3.0% m/m to 64. The index for the South declined 3.8% m/m to 76. And the index for the West decreased 3.7% m/m to 79. In contrast, the index for the Midwest increased a solid 6.3% m/m to 67, offsetting a similar decline in February.

The NAHB has compiled the Housing Market Index since 1985. It reflects survey questions which ask builders to rate sales and sales expectations as "good," "fair" or "poor" and traffic as "very high," "average" or "very low." The figures are diffusion indexes with values over 50 indicating a predominance of "good"/"very high" readings. In constructing the composite index, the weights assigned to the individual index components are: 0.5920 for single-family detached sales, present time, 0.1358 for single-family detached sales, next six months, and 0.2722 for traffic of prospective buyers. These data are included in Haver's SURVEYS database.

National Association of Home Builders Mar Feb Jan Mar Y/Y 2019 2018 2017
Composite Housing Market Index, SA (All Good=100) 72 74 75 16.1% 66 67 68
 Single-Family Sales: Present 79 81 81 16.2% 72 73 74
 Single-Family Sales: Next Six Months 75 79 80 4.2% 72 74 76
 Traffic of Prospective Buyers 56 57 58 27.3% 49 50 50
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