INTRODUCING THE HEDGEYE HOUSING VERTICAL; BUILDER CONFIDENCE SLUMPS AGAIN

Takeaway: Builder confidence slumped again in May. Taking a step back, this is consistent with the majority of recent housing data.

Welcome to The Hedgeye Housing Research Vertical

Today we are introducing our inaugural Hedgeye Housing Vertical research product. The effort is being led by Josh Steiner and Christian Drake from the Financials and Macro teams. Subscribers to Financials and/or Macro verticals are currently set up to receive this product. If you'd prefer not to receive our housing-focused research going forward please let us know.

 

Our goal is to help investors understand the trends and spot inflection points in the US housing market by tracking 15-20 different housing data series and presenting them in a hyper-simple format. Whenever data hits we will publish a brief note summarizing its importance, or lack thereof. Our Hedgeye Housing Compendium table (below) aspires to present the state of the housing market in a visually-friendly format that takes about 30 seconds to consume.

 

We've broken the market into four main categories: Home Prices, the existing home market, the new home market, and other miscellaneous data. The focus is on simple supply and demand measurements and whether they're weakening or strengthening, on the margin. We're using red and green to make it easy for investors to gauge, at a glance, whether there's widespread improvement, deterioration or a mixed bag. 

 

As the housing research effort evolves we hope you'll engage us with questions and feedback.  

 

INTRODUCING THE HEDGEYE HOUSING VERTICAL; BUILDER CONFIDENCE SLUMPS AGAIN - Compendium Table

 

THE BULLS TURN BEARISH:  Summarizing the Evolution of our Call

After being discretely bullish on housing for the better part of a year beginning in 4Q12, we turned increasingly negative at the beginning of the year and elevated #HousingSlowdown to a top Macro theme for 2Q14. 

 

The 2Q14 Macro Investment Themes presentation detailing our expectation for an intermediate term slowdown in housing can be found HERE

 

Additionally, we’ve compiled ~300 housing related research notes that had previously been published within the Financials vertical.  That research is now available for review in the new Hedgeye Housing vertical on our website.   

 

Today's Focus: NAHB HMI (Builder Confidence Survey)

This month, the NAHB’s HMI, which measures builder confidence, fell to 45, a drop of one point from April’s print of 46 (which was downwardly revised from 47).

 

This is the fourth consecutive month of decline/stagnation. While NAHB Chairman Kevin Kelly interprets this as “in line with the market reality of a continuing but modest recovery,” we see it as a clear inflection from the path housing had been on between June 2013 and January 2014, when the HMI posted its strongest post-housing crisis prints (ranging from 51-58).

 

In February of this year, the index dropped 10 points to 46 with the weakness extending through the latest reading.  It's notable that the step function move lower in builder confidence has been geographically pervasive and has persisted in the face of the positive turn in the weather. Though these prints are still well above those of 2008-2011, they do not suggest a housing market in the midst of an accelerated comeback.

 

At the sub-index level, the components that make up the HMI were mixed. That gauging current sales conditions fell from 50 in April to 48 in May. The component measuring buyer traffic increased two points to 33, and the component gauging sales expectations during the next six months rose from 56 to 57. Once again, these numbers do not speak to great strength; the NAHB expects only a one point increase in sales until the end of 2014.

 

On a regional level, builder confidence remains strongest in the South and weakest in the Northeast. The only significant movement in regional HMIs was a four-point drop in the West, where the significant and expedited drawdown from the January peak of 71 to 44 in May further extended itself.

 

While the last four months’ prints have been stronger than those of 2008-2011, they remain weak in comparison to 2013's rising prints. Don’t let ABC News Nightline talk of bidding wars fool you; the recovery is losing momentum and the appropriate question from here is how low will it go? 

 

INTRODUCING THE HEDGEYE HOUSING VERTICAL; BUILDER CONFIDENCE SLUMPS AGAIN - NAHB HMI LT

 

INTRODUCING THE HEDGEYE HOUSING VERTICAL; BUILDER CONFIDENCE SLUMPS AGAIN - HMI vs XHB   ITB

 

INTRODUCING THE HEDGEYE HOUSING VERTICAL; BUILDER CONFIDENCE SLUMPS AGAIN - NAHB SURVEY INDICATORS

 

INTRODUCING THE HEDGEYE HOUSING VERTICAL; BUILDER CONFIDENCE SLUMPS AGAIN - NAHB Region

 

INTRODUCING THE HEDGEYE HOUSING VERTICAL; BUILDER CONFIDENCE SLUMPS AGAIN - NAHB Optimism Spread 

 

About the NAHB HMI:

The Housing Market Index (HMI) is based on a monthly survey of NAHB members designed to take the pulse of the single-family housing market. The monthly survey has been conducted for 30 years. The survey asks respondents to rate market conditions for the sale of new homes at the present time and in the next 6 months as well as the traffic of prospective buyers of new homes. The HMI is a weighted average of separate diffusion indices for these three key single-family series. The HMI can range from 0 to 100, where a value over 50 implies conditions are, on average, improving, a value below 50 implies conditions are worsening, and an index value of 50 indicates that the housing market is neither improving nor worsening.

 

 

Joshua Steiner, CFA

 

Christian B. Drake

 


SECTOR SPOTLIGHT | Live Q&A with Healthcare Analyst Tom Tobin Today at 2:30PM ET

Join us for this edition of Sector Spotlight with Healthcare analyst Tom Tobin and Healthcare Policy analyst Emily Evans.

read more


Cartoon of the Day: Bulls Leading the People

Investors rejoiced as centrist Emmanuel Macron edged out far-right Marine Le Pen in France's election day voting. European equities were up as much as 4.7% on the news.

read more

McCullough: ‘This Crazy Stat Drives Stock Market Bears Nuts’

If you’re short the stock market today, and your boss asks why is the Nasdaq at an all-time high, here’s the only honest answer: So far, Nasdaq company earnings are up 46% year-over-year.

read more

Who's Right? The Stock Market or the Bond Market?

"As I see it, bonds look like they have further to fall, while stocks look tenuous at these levels," writes Peter Atwater, founder of Financial Insyghts.

read more

Poll of the Day: If You Could Have Lunch with One Fed Chair...

What do you think? Cast your vote. Let us know.

read more

Are Millennials Actually Lazy, Narcissists? An Interview with Neil Howe (Part 2)

An interview with Neil Howe on why Boomers and Xers get it all wrong.

read more

6 Charts: The French Election, Nasdaq All-Time Highs & An Earnings Scorecard

We've been telling investors for some time that global growth is picking up, get long stocks.

read more

Another French Revolution?

"Don't be complacent," writes Hedgeye Managing Director Neil Howe. "Tectonic shifts are underway in France. Is there the prospect of the new Sixth Republic? C'est vraiment possible."

read more

Cartoon of the Day: The Trend is Your Friend

"All of the key trending macro data suggests the U.S. economy is accelerating," Hedgeye CEO Keith McCullough says.

read more

A Sneak Peek At Hedgeye's 2017 GDP Estimates

Here's an inside look at our GDP estimates versus Wall Street consensus.

read more

Cartoon of the Day: Green Thumb

So far, 64 of 498 companies in the S&P 500 have reported aggregate sales and earnings growth of 6.1% and 16.8% respectively.

read more