U.S. Housing Sector Improves This Month Says Home Builders Association

Is this the beginning of a real turnaround in housing? Time will tell if low interest rates are finally having an effect. But for this month, the National Association of Home Builders reported that their index of housing market activity improved to 16 from a downwardly revised 13 in September. The figure was just off the all-time low reached in January of last year and m/m stability was the Consensus expectation.

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.

While the home market has improved, it's hardly strong. The index of single-family home sales rose to 16 but that was still down from levels near 80 in 2004. The index of sales during the next six months also improved to 23. Higher as well was the home builders' indication that the traffic of prospective buyers rose slightly. Each of these NAHB figures is seasonally adjusted. The Builders' index for the Southern and Western regions of the country showed the greatest m/m improvement. The index for the South and the Northeast improved modestly.

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 up in 2Q (the latest available figure) to 72.3%. That 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.