U.S. Home Builders Report Disappoints

On two counts the National Association of Home Builders report on housing market activity this month was a disappointment. First, the September figure fell back to 14, near its lowest of the recovery. Second, it was short of Consensus expectations for m/m stability. The latest number was, however, up from the all-time low of 8 reached in January of 2009. During the last ten years there has been a 93% correlation between the index of sales & traffic and housing starts.

The index of single-family home sales slipped back to 14 and remained down from levels near 80 in 2004. The index of sales during the next six months fell again after its June uptick. The home builders' index of traffic of prospective buyers fell m/m to 11. By region, the indexes fell throughout the country except the Midwest which posted a slight gain. Each of these NAHB figures is seasonally adjusted.

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, slipped in Q2 to 72.6%. Nevertheless, it remained 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 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.

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. The expectation figure is available in Haver's MMSAMER database.