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Increased Expectations Will Likely Boost Housing Demand

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Housing market index rose by three points to 64 in October

According to the National Association of Home Builders (or NAHB), the housing market index (or HMI) rose to 64 in October as compared to 61 in September 2015. With a rise in homebuilder optimism, the iShares U.S. Home Construction ETF (ITB) and the SPDR S&P Homebuilders ETF (XHB) have increased 0.26% and 0.59% as of October 16. The ETF jumped 15.5% and 18.2% from a year ago.

“The fact that builder confidence has held in the 60s since June is proof that the single-family housing market is making lasting gains as more serious buyers come forward,” said NAHB chair Tom Woods, a homebuilder from Blue Springs, Missouri, in a press release. “However, our members continue to tell us there are still pockets of softness in some markets across the nation, and that they face challenges regarding the availability of lots and labor.”

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  Future expectations rose by seven points to 75 in October

The HMI is one of the best predictors of future housing activity. It is based on responses from homebuilders, who have the best pulse on current and future homebuilding trends. An increase in a component that gauges sales expectations in the next six months to 75 from 68 index points implies that the builders are hopeful about future housing demand. Unless they are confident about an uptick, they will not commit new funds for construction.

Buyer traffic remained unchanged at 47

Also, the current sales conditions component has risen to 70 index points in October while buyer traffic has remained unchanged at 47, which is still below the neutral level of 50. This suggests that there isn’t an uptick in walk-ins for new home sales by potential customers. Homebuilder stocks such as D.R. Horton (DHI), Lennar (LEN), Home Depot (HD), and NVR (NVR) were up 33.7%, 16.8%, 30.2%, and 28.8%, respectively, over the past year as of October 16.

The housing market is set to keep improving with 30-year floating mortgage rates staying low at 4.0%. With better job prospects, there may be a surge in home sales.

In the next article, let’s look at how Russia’s economic growth is shaping up.

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