This morning the National Association of Home Builders published their latest update on home builder sentiment. The headline index rose to 46 versus an expected decline from 43 to 42. That three-point jump marks the largest one-month uptick since March but only leaves it in the middle of its range from the past couple of years.
Of the sub-indices, future sales stood out the most. The index surged 7 points month over month to reach the most elevated reading since April 2022. That is just above the historical median and suggests homebuilders are optimistic in spite of weaker readings in traffic and present sale indices.
As noted, present sales and traffic were not as rosy as future sales. As shown below, present sales were higher in November rising 2 points month-over-month to 49. However, that is only in the 29th percentile of historical readings, and more recently that is well within the range of readings from the past couple of years.
With present and future sales moving in the opposite direction, a massive divergence has formed between the two. As shown below, for most of the survey’s history, future sales have tended to be higher than present sales for sustained periods albeit with some exceptions like the first couple of years of the pandemic. The last time present sales were stronger than future sales (negative readings in the chart below) was just five months ago, but there has been a massive turnaround since then. With November’s reading, the spread is at the highest level (meaning sentiment towards future sales is stronger than present sales) since December 2006. Late 1991 was the only other time in which there was as wide of a divergence between the two.
Not only has there been a divergence between present and future sales, but the report also showed some divergence in sentiment based on geography. As shown below, homebuilder sentiment has perked up in the Northeast and the Midwest. Conversely, sentiment was lower month over month and closer to the low ends of recent ranges in the South and West.(Click on image to enlarge)
As for homebuilder stocks, the long-term uptrend remains in place albeit the chart isn’t as constructive as it once was. In late October, the iShares US Home Construction ETF () fell back below its 50-DMA for the first time since late spring and early summer when there was a successful test of support at the longer-term 200-DMA. While there hasn’t been any sort of similar drawdown to support this go around, one week ago there was a failed attempt to move back above the 50-DMA. That leaves the group in no-man’s-land sandwiched between the two moving averages.More By This Author:
Homebuilders Present Vs. The Future
