U.S. Home Builders Association Indicates Housing Sector Stability

The National Association of Home Builders reported that their index of housing market activity held at 16 this month from an unrevised 16 in November. The level of 16, in fact, has been the average for the past year. The latest figure remained above the all-time low reached in January of last year and it met Consensus expectations.

The Home Builders index is compiled from survey questions asking builders to rate market conditions as "good," "fair," "poor" or "very high" to "very low." The figure is thus a diffusion index with numerical results over 50 indicating a predominance of "good" readings. During the last ten years there has been a 75% correlation between the y/y change in the index and new plus existing single family home sales.

The index of single-family home sales also held steady at 16 and remained down from levels near 80 in 2004. The index of sales during the next six months was stable as well at 25. Lower was the home builders' index of traffic of prospective buyers. Each of these NAHB figures is seasonally adjusted. The Builders' index for the Midwest and Western regions of the country showed the greatest m/m improvement. The index for the South (unchanged) and the Northeast (down) were weak.

The Home Builders' Housing Opportunity Index, which is the share of homes sold that could be considered affordable to a family earning the median income, inched down in Q3 to 72.1%. That still was near the record high, buoyed by lower home prices, lower interest rates and higher income. (There is a break in the series from 2002 to 2003.)

The NAHB has compiled the Housing Market Index since 1985.The weights assigned to the individual index components are .5920 for single family detached sales, present-time, .1358 for single family detached sales, next six months; and .2722 for traffic of prospective buyers. The results, along with other housing and remodeling indexes from NAHB Economics, are included in Haver's SURVEYS database.