Home Builders Getting More Optimistic

The National Association of Home Builders index rose for the fourth straight month, rising to 25 from 21.  While far better than is has been over the last three years or so, it is still a low reading.  This is a “magic 50 index” where anything below 50 indicates that conditions are poor.  The index has three sub-indexes.  The one measuring current sales conditions rose to 25 from 22 last month, the one gauging expectations over the next six month was up to 29 from 26, while the index measuring traffic of prospective homeowners coming through the model homes was up to 21 from 18.

All four census regions registered gains.  The largest by far was the Northeast, which rose nine points to 23 from 14.  The smallest increase was in the Midwest, up just one point to 24.  The South, by far the largest and most important of the four regions saw a two point increase to 27, while out West, the regional index climbed to 21 from 16.

We will find out more about the strength of the housing recovery tomorrow morning when the data on housing starts and building permits come out.  The expectation is that total housing starts, which jumped by 9.3% in November to an annual rate of 685,000 will drop back to 670,000.  However the jump last month was all due to a huge 32.2% rise in the volatile multi-family (apartments and condos) sector, which was up 180.5% year over year (low base, not a typo).  Single family starts were up just 1.5% on the month and 1.5% year over year. 

Historically (the index started in the mid 1980’s) the NAHB index has been a pretty good coincident to slightly leading indicator of single family starts.  As such, with the nice increase in the NAHB index, I think that starts will surprise to the upside tomorrow.  Unfortunately, there is no available consensus number for single family starts, but I would expect them to rise from the 447,000 annual rate in November.  Mild weather in December should also help the starts number for the month.  I have a 460,000 number penciled in.  That is still far below the 1.823 million rate at the peak of the housing bubble, but nicely above the 353,000 low set in March of 2009.

It seems pretty clear to me that we are going to see a housing recovery this year.  Do you agree, and if so how strong do you expect it to be?  Given the very low base, I think in percentage terms it could be fairly strong, but it will be a very long time before we get anywhere close to the record levels again.
 

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