MACRO MONDAY 21~NAHB Housing Market Index for ECONOMICS:USHMI by PukaCharts

The NAHB Housing Market Index (HMI) is compiled from a monthly survey issued by the National Association of Home Builders (NAHB) to U.S. builders in order to measure the current and forward looking sentiment for single-family homes being built or with the prospect of being built in the U.S.

In the survey builders rate their current single-family sales, sales prospects over the next six months, and the traffic of prospective buyers.

The NAHB Builders consists of more than more than 700 state and local associations with 140,000 members. According to the NAHB these builders account for some 80% of the new homes built in the U.S.

Correlation with U.S. Housing Starts

The HMI displays a close correlation with “U.S. Housing Starts”. U.S Housing starts are a broader measure of new residential construction for privately owned homes which includes multi-family housing (units & apartment complexes). U.S. Housing Starts is supplied monthly by the U.S. Census Bureau from surveys conducted and is considered a key economic indicator of the overall housing sector.

The release of U.S. Housing Starts is the day after the HMI, so the HMI gives us a day head start on the 11thbusiness day of each month (16th Nov), with Housing Starts released on the 12th business day (17th Nov).

The correlation between the HMI and the U.S. Housing Starts:

The NAHB release on Thurs 16thNov (11th Business Day) came in at 34

HMI readings above 50 reflect a generally favorable market view and outlook in the housing sector whilst a reading below 50 indicates weakness in the housing sector.

Since July 2023 the HMI has fallen from 56 down to 34.

The HMI registered an all-time high reading in November 2020 at 90 and since then has made a series of lower highs over 32 months. These lower highs combined with a reading below 50 do not bode well on the recession front as you can see from the below chart (red arrows).

Similar to recent months, from May – Aug 1989 the HMI peaked its head above the 50 level for these four summer months before tanking down to 20. From May – Aug 2023 the HMI briefly rose above the 50 level in similar fashion and appears to now be reducing at a rapid rate. An interesting level to watch will be the diagonal support line at approx. 31 (dashed line). If held it would be a higher low and could indicate a pause in the decline. A level to keep an eye on because if lost it means we have consistently made lower lows and lower highs. Not a good look at all and we would be eyeing the 20 level in such a scenario.

US Housing Starts

US Housing Starts release on Friday 17th Nov (12th Business Day) which provides for Octobers figures came in higher than expected at 1,372K vs the 1,350K estimate. Building Permits came in higher than expected at 1,487K vs the 1,450K estimate.

Given that the HMI is in less than favorable territory at 34 (HMI only accounts for single family homes), the higher than expected US Housing Starts could be an indication that larger multi-family housing (units and apartments) are being built at a greater rate than single-family houses. In any event US Housing Starts has been in decline since April 2022

In summary the charts suggest the long term trend for both the NAHB and US Housing Starts are in decline with multi-unit properties (Apartments) being more rapidly built in recent months than individual homes.

We will keep an eye on the these metrics going forward and are now aware we can get a days advance indication from NAHB ahead of US Housing Starts being released.

PUKA