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Real Consumption versus NAHB Sentiment

I spoke with Hugh Moore of Guerite Advisors over the weekend. Hugh has sent this chart over, and I found it worth sharing (I'll have some more info later this week on Housing).

Note that the NAHB Housing Index is a measure of Builder sentiment -- it measures a combination of sales, traffic and new permits (NAHB site is down, I'll post the exact components later).

What happens when we overlay the Housing Index against Real Personal Consumption? It turns out that, going back to 1985 anyway, it operates as a leading indicator:   

Graphic courtesy of Guerite Advisors

I would like to see this going back further than 1985, but it certainly raises some interesting issues . . .

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UPDATE II:  January 22, 2007 12:43pm

The range for the NAHB/HMI ran from a maximum of 78 in December 1998 down to a minimum of 20 in January 1991.

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UPDATE:  January 22, 2007 11:47am

Here's some more details from the NAHB survey, now that their site is back up:

"Derived from a monthly survey that NAHB has been conducting for 20 years, the NAHB/Wells Fargo Housing Market Index (HMI) gauges builder perceptions of current single-family home sales and sales expectations for the next six months as either “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as either “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view sales conditions as good than poor.

 

Two out of three component indexes registered improvement in January. The index gauging current single-family home sales and the index gauging traffic of prospective buyers each gained three points, to 36 and 26 respectively, while the index gauging sales expectations for the next six months remained unchanged at 49.

Note that "50" is the line in the sand for good versus poor conditions; Current sales and prospective traffic improved slieghtly, but its still way below 50, meaning its still rather poor . . .

Monday, January 22, 2007 | 07:02 AM | Permalink | Comments (19) | TrackBack (0)
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Comments

i hope you and your readers realize that there's no "y" axis for the NAHB - or do you think the sentiment has been positive for the last 20 years? the author u quote is not an original thinker, google this relationship and u'll find tons of studies going back for some time.

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BR: You are partially correct. There is a Y axis, its just not marked for the NAHB index.

Let me find out if I can get that data

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UPDATE II: January 22, 2007 12:43pm

The range for the NAHB/HMI ran from a maximum of 78 in December 1998 down to a minimum of 20 in January 1991.

Posted by: daniel | Jan 22, 2007 9:20:44 AM