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Economy in Brief

U.S. Home Builders Index Eases Further in July
by Tom Moeller  July 19, 2021

• Activity remains down versus November high.

• Declines are evident in most regions.

• Home-buyer traffic weakens substantially.

The Composite Housing Market Index from the National Association of Home Builders-Wells Fargo declined 1.2% (+11.1% y/y) during July to 80 from 81 in June. An improvement to 82 was expected in the INFORMA Global Markets survey. The seasonally-adjusted index was 11.1% below the record high reached in November 2020. Over the past 15 years, there has been a 65% correlation between the y/y change in the home builders index and the y/y change in new plus existing home sales.

Performance amongst the composite index's three sub-series was mixed this month. The index of present sales conditions fell 1.1% (+10.3% y/y) to 86 from an upwardly revised 87. The level was 10.4% below last November's record high of 96. Conversely, the index of expected sales over the next six months rose 2.5% (+8.0% y/y) to 81 and recovered its June decline. The index measuring traffic of prospective buyers weakened 8.5% (+14.0% y/y) to 65, the lowest level since August of last year. The index was 15.6% below the cycle high of 77 in November 2020.

Most regional index reading fell this month. The index for the Northeast fell 2.7% (+2.9% y/y), down for the fifth straight month. The index for the South dropped 2.4% (+15.3% y/y) and was 7.8% below the November high. The index for the West declined 2.3% (+5.0% y/y) to the lowest level in twelve months. To the upside, the index for the Midwest improved 1.4% (+2.9% y/y) and recovered its June decline. These regional series begin in December 2004.

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.

According to the Business Cycle Dating Committee of the National Bureau of Economic Research (NBER), "Economy Reached Trough in April 2020." "Business Cycle Dating Committee Announcement July 19, 2021" can be found here.

National Association of Home Builders Jul Jun May Jul '20 2020 2019 2018
Composite Housing Market Index, SA (All Good=100) 80 81 83 72 70 66 67
 Single-Family Sales: Present 86 87 88 78 76 72 73
 Single-Family Sales: Next Six Months 81 79 81 75 74 72 74
 Traffic of Prospective Buyers 65 71 73 57 56 49 50
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