U.S. Home Builder Sentiment Increases to New High

The Composite Housing Market Index from the National Association of Home Builders-Wells Fargo strengthened during December. The index rose to 76, up 7.0% m/m and by roughly one-third y/y. The index was the highest level for the economic expansion. A reading of 70 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 rose 9.1% to 84 (37.7% y/y) after easing to 77 in November. The index of expected conditions in the next six months increased 1.3% (29.5% y/y) to 79, up for the third straight month. The index measuring traffic of prospective buyers rose 7.4% to 58 (34.9% y/y) and equaled the expansion high.

Regional readings were mixed this month. They indicated a 25.9% increase (40.4% y/y) in the Midwest to 73, which was just shy of the expansion high two years ago. In the South, the index gained 2.7% (26.2% y/y) to 77, a new high. Offsetting these increases was a 9.4% decline (+61.1% y/y) to 58 in the Northeast. The index for the West also fell 2.4% (+27.7% y/y) and reversed its November rise.

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.