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Real Consumption versus NAHB Sentiment

Posted By Barry Ritholtz On January 22, 2007 @ 7:02 am In Consumer Spending,Economy,Psychology,Real Estate | Comments Disabled

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:   

Real_consumption_v_nahb [1]

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 [2], 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 . . .


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URLs in this post:

[1] Image: http://bigpicture.typepad.com/.shared/image.html?/photos/uncategorized/real_consumption_v_nahb.png

[2] NAHB survey: http://www.nahb.org/news_details.aspx?newsID=3939

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