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Key housing releases
Four important housing indicators are due for release this week: the National Association of Home Builders (or NAHB)/Wells Fargo (WFC) Housing Market Index, housing starts, existing home sales, and the Mortgage Bankers’ Association Purchase Applications Index. We’ll be discussing all of these indicators in this part as well as the remaining parts of this series.
Housing data releases are important economic indicators. Besides indicating an increase or decrease in housing activity, they also give guidance across other segments of the economy—especially for construction and home furnishing companies. As buying a home is a significant investment, these are some of the strongest consumer confidence indicators, and since consumption comprises over 70% of the economy, an improvement in these indicators will imply that the overall economy is improving.
The U.S. Census Bureau of the Department of Commerce estimated the value of private construction (unadjusted) at $627 billion in 2013—8.5% above the $578 billion spent in 2012. Residential construction in 2013 was $331 billion—18% above the 2012 figure of $280 billion. Finally, non-residential construction was $297 billion—0.4% below the $298 billion in 2012. From these findings, it’s clear that residential construction spending has been on the rise in 2013. This month’s release will confirm whether analysts expect this trend to continue.
What is the National Association of Home Builders (or NAHB)/Wells Fargo (WFC) Housing Market Index (or HMI)?
The NAHB/Wells Fargo (WFC) Housing Market Index monthly survey that characterizes builders’ perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair,” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average,” or “low to very low.” These components are then used to derive a seasonally adjusted index score. A score over 50 shows that the majority of builders rate market conditions as “good,” whereas a score below 50 indicates that more builders have “poor” market expectations.
The HMI reading in January came in at 56—one point behind December’s reading of 57. The consensus estimate for February is within the range of 54 to 58.
“Following an unexpected jump last month, builder confidence has essentially leveled out and is holding at a solid level,” said NAHB chairman Rick Judson, a homebuilder from Charlotte, North Carolina. “Many markets continue to improve and this bodes well for future home sales,” he commented.
“Rising home prices, historically low mortgage rates and significant pent-up demand will drive a continuing, gradual recovery in the year ahead,” said NAHB chief economist David Crowe. “However, the pace of the recovery could be stronger were it not for rising construction costs and inaccurate appraisals that are keeping some home sales from going through.”
February’s reading is due to be released on Tuesday, February 18. An increase in housing activity indicates economic growth, which will lead to rising interest rates and lower bond prices, other things remaining constant. To read about other housing indicators due to release this week, move on to Part 5 of this series.
© 2013 Market Realist, Inc.