MACRO MONDAY 21~NAHB Housing Market IndexMACRO MONDAY 21
NAHB Housing Market Index
The NAHB Housing Market Index (HMI) is compiled from a monthly survey issued by the National Association of Home Builders (NAHB) to U.S. builders in order to measure the current and forward looking sentiment for single-family homes being built or with the prospect of being built in the U.S.
In the survey builders rate their current single-family sales, sales prospects over the next six months, and the traffic of prospective buyers.
The NAHB Builders consists of more than more than 700 state and local associations with 140,000 members. According to the NAHB these builders account for some 80% of the new homes built in the U.S.
Correlation with U.S. Housing Starts
The HMI displays a close correlation with “U.S. Housing Starts”. U.S Housing starts are a broader measure of new residential construction for privately owned homes which includes multi-family housing (units & apartment complexes). U.S. Housing Starts is supplied monthly by the U.S. Census Bureau from surveys conducted and is considered a key economic indicator of the overall housing sector.
The release of U.S. Housing Starts is the day after the HMI, so the HMI gives us a day head start on the 11thbusiness day of each month (16th Nov), with Housing Starts released on the 12th business day (17th Nov).
The correlation between the HMI and the U.S. Housing Starts:
The NAHB release on Thurs 16thNov (11th Business Day) came in at 34
▫️ HMI readings above 50 reflect a generally favorable market view and outlook in the housing sector whilst a reading below 50 indicates weakness in the housing sector.
▫️ Since July 2023 the HMI has fallen from 56 down to 34.
▫️ The HMI registered an all-time high reading in November 2020 at 90 and since then has made a series of lower highs over 32 months. These lower highs combined with a reading below 50 do not bode well on the recession front as you can see from the below chart (red arrows).
Similar to recent months, from May – Aug 1989 the HMI peaked its head above the 50 level for these four summer months before tanking down to 20. From May – Aug 2023 the HMI briefly rose above the 50 level in similar fashion and appears to now be reducing at a rapid rate. An interesting level to watch will be the diagonal support line at approx. 31 (dashed line). If held it would be a higher low and could indicate a pause in the decline. A level to keep an eye on because if lost it means we have consistently made lower lows and lower highs. Not a good look at all and we would be eyeing the 20 level in such a scenario.
US Housing Starts
▫️ US Housing Starts release on Friday 17th Nov (12th Business Day) which provides for Octobers figures came in higher than expected at 1,372K vs the 1,350K estimate. Building Permits came in higher than expected at 1,487K vs the 1,450K estimate.
▫️ Given that the HMI is in less than favorable territory at 34 (HMI only accounts for single family homes), the higher than expected US Housing Starts could be an indication that larger multi-family housing (units and apartments) are being built at a greater rate than single-family houses. In any event US Housing Starts has been in decline since April 2022
In summary the charts suggest the long term trend for both the NAHB and US Housing Starts are in decline with multi-unit properties (Apartments) being more rapidly built in recent months than individual homes.
We will keep an eye on the these metrics going forward and are now aware we can get a days advance indication from NAHB ahead of US Housing Starts being released.
PUKA
NAHB
Macro Monday 29 - U.S. Existing Home Sales & New Home Sales U.S. Existing Home Sales & New Home Sales
U.S. Existing Home Sales
U.S. Existing Home Sales data helps us to gauge the strength of the U.S. housing market and is a key indicator of overall economic health in the U.S.
In simple terms U.S. Existing Home Sales is a seasonally adjusted record of previously owned homes that have been sold in the United States (per unit).
The monthly data report is released by the National Association of Realtors (NAR) and It is a lagging indicator since people often make housing choices in response to a changes in interest rates (which would lead ahead of this dataset).
Decembers report will be released this Friday 19th Jan. I will update the chart then so we can see how the trend is developing.
The Chart
You can clearly see that we have been in a downtrend since October 2020 where we topped out at 6.73m units. Thereafter from Jan 2022 – October 2023 we fell precipitously from 6.34m down to 3.79m.
Sales of previously owned homes in the U.S. went up 0.8% month-over-month to a seasonally adjusted annualized rate of 3.82m units in November 2023 (a turning point?), rising for the first time in five months, and rebounding from 3.79m in October which was the lowest level since August 2010.
Whilst we are waiting for December 2023 figures, the Jan – Mar 2024 figures will also provide a good sentiment gauge for the direction in 2024.
The chart has that look at present that it is basing here or potentially changing trend. Accessibility to existing homes is clearly low at present and one would think that low existing home sales clogs up the market and liquidity that might flow with it and the economy however, the low existing house sales also appears to create demand for New Homes which we will cover next.
U.S. New Home Sales
New Home Sales, also known as "new residential sales," is an economic indicator that measures sales of newly built homes (seasonally adjusted for annualized figures).
The New Home Sales measure compiles data through interviews with home-builders and analysis of the U.S. Census Bureau's Survey of Construction. Specifically, it utilizes information on building permits issued for new construction projects. A home is considered part of the measure if a deposit was paid for its purchase or if a contract to purchase was signed within or after the year of its construction.
The construction of new homes contributes significantly to the Gross Domestic Product (GDP) of the U.S. It involves spending on materials, labor, and various services, which can stimulate economic activity. New home sales data is a critical metric for assessing economic health, understanding employment trends, and gaining insights into the dynamics of the housing market.
The Chart
You can clearly see that we never really recovered after the 2005 peak of 1.39m units, however bottomed in 2011 and started making a slow climb from 273k to a 1.04m peak in August 2020. This remains the recent peak and has not been recovered.
An almost 50% reduction in New Home Sales followed reducing from 1.04m to 543k units over 23 months ending July 2022.
We are currently 10% above this level at 590k (for Nov) having rolled over in July 2023 from 728k.
The chart looks very concerning. Should we lose the diagonal and horizontal support with this month or next months data release, it could be very telling of a struggling new housing market. We have tested the horizontal support three times and you would hope that this would hold. Time will tell.
Comparing the Charts
Here is where it gets a little interesting.
When you look at both charts and compare them you can see that between June 2022 and Sept 2023 the decreasing EXISTING home sales negatively correlated with the increase in NEW home sales. This would make surface level sense given the lack of existing homes being available creating a need for new housing.
In recent months there has been a sharp divergence in the opposite direction, particularly in NEW home sales, which plunged from 717k in Sept 2023 to 590k in Nov 2023. EXISTING Home Sales increased marginally from 3.79m in Oct 2023 to 3.82m in Nov 2023. Is this a turning point?
Obviously a combination of factors are at work here and its not just existing supply coming to the market that might be disrupting new home sales or vice versa but its interesting seeing this correlation and its something to keep an eye on for investors and policy makers. Sale of brand new homes creates a lot of economic activity and if sales are declining significantly whilst existing homes are starting to come back onto the market, one would presume it would stress the housing market and the economy. We may need reduced interest rates sooner rather than later to help fan the flames of the new housing market, or maybe its time the market takes a breather? What do you think? It certainly adds to the argument for lower rates sooner from the Federal Reserve to "soften the landing" or that divergence noted today.
On Macro Monday 21 we covered the NAHB Housing Market Index and its close correlation to U.S Housing Starts. If you enjoyed this read today, you should take a look at that. They are two useful additions that give another view. I'll throw the link in the comments.
Thanks for coming along again 🤓 if you enjoyed this or found it informative please let me know
PUKA