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.
Today's Focus: August NAHB HMI (Builder Confidence Survey)
This month (August), the NAHB’s HMI, which measures builder confidence, rose to 55, a gain of two points from July’s print of 53 (which was not subject to any revision), marking the highest reading in seven months and the second month above the improvement demarcation line of 50 on the Index.
- Sub-Indices: All 3 sub-indices increased MoM for a 3rd consecutive month with balanced gains across Current Sales (+2pts), 6M expectations (+2pts) and Current Traffic (+3pts)
- Mid-West Mojo: Builder Confidence declined modestly in the West and South while rising modestly in the Northeast. Notably, the Midwest region saw its largest MoM increase ever, increasing +13 pts from July to August
Prognostic or Pollyanna? Last month’s gain in Builder Confidence was led by rising optimism with the forward expectations component registering a disproportionate increase. This month saw a commensurate increase in current sales and forward expectations, leaving the “optimism spread” at its highest level since 3Q12.
Perhaps the modest, ongoing improvement in the labor market is buoying stakeholder confidence in the housing market but, in relation to the preponderance of demand and HPI data (purchase apps, new home sales/start, pending home sales), builder confidence continues to decouple from the reality of actual new construction activity.
We’ll get the housing starts/permits data for July tomorrow, but with permits running largely flat with flagging Starts figures YTD (& declining in the latest month) the upside for single family construction over 2H appears somewhat constrained.
COMMENTARY: After recurrent flip-flopping on the chosen spin the last few months, the August commentary was expectedly balanced and largely canned:
NAHB Chairman Kevin Kelly had this to say on the August reading:
“As the employment picture brightens, builders are seeing a noticeable increase in the number of serious buyers entering the market...However, builders still face a number of challenges, including tight credit conditions for borrowers and shortages of finished lots and labor.”
NAHB's Chief Economist, David Crowe, added this:
“Each of the three components of the HMI registered consecutive gains for the past three months, which is a positive sign that builder confidence appears to be firming following an uneven spring…Factors contributing to this rise include sustained job growth, historically low mortgage rates and affordable home prices, which are helping to unleash pent-up demand.”
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