HOUSING SENTIMENT INDICATORS

One can argue that economic data on housing activity is lagging and that a trader needs to
find indicators that are more coincident with activity or even leading. A valuable source
for assessing housing activity in the United States is the survey releases of the National
Association of Housing Builders (NAHB). According to the NAHB, “The Housing Market
Index (HMI) is based on a monthly survey of NAHB members designed to take the pulse


TABLE 1.1 Number of New Privately Owned Housing Units Started (Seasonally Adjusted)
Year
New Privately
Owned Housing
Starts (Unit =
Thousands) Year
New Privately
Owned Housing
Starts (Unit =
Thousands) Year
New Privately
Owned Housing
Starts (Unit =
Thousands)
Jan-00 1636 Jun-02 1717 Nov-04 1782
Feb-00 1737 Jul-02 1655 Dec-04 2042
Mar-00 1604 Aug-02 1633 Jan-05 2137
Apr-00 1626 Sep-02 1804 Feb-05 2213
May-00 1575 Oct-02 1648 Mar-05 1856
Jun-00 1559 Nov-02 1753 Apr-05 2079
Jul-00 1463 Dec-02 1788 May-05 2034
Aug-00 1541 Jan-03 1853 Jun-05 2078
Sep-00 1507 Feb-03 1629 Jul-05 2070
Oct-00 1549 Mar-03 1726 Aug-05 2075
Nov-00 1551 Apr-03 1643 Sep-05 2158
Dec-00 1532 May-03 1751 Oct-05 2046
Jan-01 1600 Jun-03 1867 Nov-05 2131
Feb-01 1625 Jul-03 1897 Dec-05 2002
Mar-01 1590 Aug-03 1833 Jan-06 2265
Apr-01 1649 Sep-03 1939 Feb-06 2132
May-01 1605 Oct-03 1967 Mar-06 1972
Jun-01 1636 Nov-03 2083 Apr-06 1832
Jul-01 1670 Dec-03 2057 May-06 1953
Aug-01 1567 Jan-04 1911 Jun-06 1833
Sep-01 1562 Feb-04 1846 Jul-06 1760
Oct-01 1540 Mar-04 1998 Aug-06 1659
Nov-01 1602 Apr-04 2003 Sep-06 1724
Dec-01 1568 May-04 1981 Oct-06 1478
Jan-02 1698 Jun-04 1828 Nov-06 1565
Feb-02 1829 Jul-04 2002 Dec-06 1633
Mar-02 1642 Aug-04 2024 Jan-07 1565
Apr-02 1592 Sep-04 1905 Feb-07 1525
May-02 1764 Oct-04 2072
of the housing industry, especially the single-family industry. The survey asks respondents
to rate general economic and housing market conditions.”
By looking at the HMI data for 2005 and 2006 we can discern an increasing pessimism
on the health of the housing market (see Tables 1.2 and 1.3). The survey results
in the summer of 2005 were at a peak on all HMI component measures. The Federal
Reserve stopped increasing rates in August 2006, reflecting their judgment that the economy
didn’t require more rate increases. Using the HMI index, the forex trader saw a


TABLE 1.2 Housing Market Index (Seasonally Adjusted)
2005
May Jun Jul Aug Sep Oct Nov Dec Jan Feb
70 72 70 67 65 68 61 57 57 56
2006
Mar Apr May Jun Jul Aug Sep Oct Nov Dec
54 51 46 42 39 33 30 31 33 32
Source: National Association of Housing Builders.
significant weakening in the housing market, which was an omen that increases in rates
were increasingly not likely. At the end of 2006, the HMI survey shows that the previous
rate of decline in housing starts was slowing down. This can be interpreted as possible
bottoming out of the housing market. Using this data, those traders expecting an interest
rate decrease would have to reconsider their confidence in a rate cut.
The importance of housing data as an indicator for traders is reflected in the fact that
new sources of data on housing are being developed for investors. One of the more recent
sources is the Standard & Poor’s (S&P)/Case-Shiller home price index. It is a benchmark
measure for housing prices. It tracks the value of single-family homes in the United
States. Twenty metropolitan areas are tracked, and the index is measured monthly. The
TABLE 1.3 Housing Market Index Components (Seasonally Adjusted)
2005
May Jun Jul Aug Sep Oct Nov Dec Jan Feb
Single-Family Sales: Present
76 77 76 73 72 74 67 64 62 61
Single-Family Sales: Next 6 Months
77 80 77 77 70 73 65 65 66 64
Traffic of Prospective Buyers
53 55 55 50 49 51 46 40 41 40
2006
May Jun Jul Aug Sep Oct Nov Dec Jan Feb
Single-Family Sales: Present
59 55 50 47 43 37 32 32 33 33
Single-Family Sales: Next 6 Months
62 59 55 51 46 41 37 42 45 48
Traffic of Prospective Buyers
40 39 33 29 27 22 22 23 26 23
Source: National Association of Housing Builders.


last Tuesday of each month at 9 A.M. is the release time of the announcement. Traders
looking for leading indicators of a housing recovery will likely see it in increases in housing
prices tracked by this monthly index, posted at www.indices.standardandpoors.com.
Detailed housing data can also be found at www.macromarkets.com.


By ABE COFNAS