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Economy in Brief

U.S. Home Builders’ Index Rises To Highest Since 2007
by Tom Moeller May 17,2010

The housing market is rebounding according to the National Association of Home Builders. Their index of housing market activity rose this month to 22 from 19 in April and the latest matched the highest level since July 2007, before the recession's onset. Moreover, the index nearly tripled the low of 8 hit in January 2009. A rise in May to 20 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.

At 23, the present sales index also rose to its highest level since July 2007. The index of sales during the next six months improved, but to a lesser extent, to a reading of 28 which was the highest level since November.The Home Builders' Association also reported that the traffic of prospective buyers recovered but only to the highest level since September. Each of these NAHB figures is seasonally adjusted.

Improvement was sharpest in the Builders' index for the Northeast where the index rose to its highest level since 2007. Elsewhere, improvement was less pronounced.

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 during 4Q '09 (the latest available figure) to 70.8%. It had jumped earlier to a record high of 72.5% 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.

Nat'l Association of Home Builders May April March  May '09 2009 2008 2007
Composite Housing Market Index (All Good=100) 22 19 15 16 15 16 27
  Single-Family Sales 23 20 15 14 13 16 27
  Single-Family Sales: Next Six Months 28 25 24 27 24 25 37
  Traffic of Prospective Buyers 16 13 10 13 13 14 21
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