Yale & Jeff Hirsch
About the Editor Jeff is editor in chief of the Almanac Investor newsletter Stock Trader's Almanac, StockTradersAlmanac.com, and the Hirsch Organization. He makes frequent appearances on CNBC, CC, Fox, and Bloomberg. Yale Hirsch is founder of the Stock Trader’s Almanac.
Recently there has been a fair amount of media buzz (again) about a housing market recovery. Sure, sentiment and sales figures have improved recently, but in the charts below of the four key pieces of housing data that we track: Existing Home Sales, Housing Starts, New Home Sales and the National Association of Home Builders’ (NAHB) Housing Market Index (HMI), the reported recovery does not look all that impressive. Much of the bleeding has stopped, but a great deal of healing is still needed for the housing market to once again become a healthy component of the economy. A sustained rise in these four indicators will help us know when the economy is once again on sure footing. Click Charts To For Larger View…
Existing Home Sales are the single most important piece of data that affects individuals. It is a measure of the ease in which one can buy and sell a house and reflects the relative value that your house has. Existing home sales have leveled off recently, but we are far from out of the woods. Many homes have been sold at considerable losses or foreclosed upon. This number has vacillated wildly since its 2005 peak with a downward trend. Sales spiked in 2009 and again in 2010 on home buyer tax credits, but those credits have long since expired. Housing Starts are indicative of how builders feel about the housing market, and are important for two reasons. First, home building provides a lot of jobs. When new home building sours whole construction crews are out of work. Second, housing starts are a leading indicator of the amount of risk that the market is willing to take. In a good market, home builders ramp up construction in anticipation of future sales. When the market turns, they quickly rein in their plans. Since the top, the number of housing starts crumbled back below 500 thousand in 2009 and currently looking for support above that level. This is a function of weak demand and stingy lending requirement despite historically low interest rates. It usually takes longer to build a house than sell a house, resulting in a buildup of inventory. Homebuilders attempt to strike a balance and plan their new construction accordingly. New home Sales fell off of a cliff; down 80% from almost 1.4 million to 280 thousand in five years from 2005 to 2010. The glut of new homes continues to depress home prices and restrict new construction jobs. New home sales will be the last indicator to turn, but will provide an important confirmation when the housing market turns. The National Association of Home Builders’ Housing Market Index (HMI) may be the best indicator for judging the overall health of the housing market. The HMI was ahead of the curve in forecasting the imminent demise of the market. From 2005 to 2006, the HMI leveled off and turned down well before the other data began to crumble. The HMI will also convey any optimism within the industry before the data confirms a recovery. Numbers above 50 are a positive bias, below is negative. The index hovered below 20 from 2007 to 2011 until recently. Up ticks over the previous three years were encouraging, but proved fleeting. The big swings were fake outs, showing that the HMI cannot be looked at in a vacuum. Nonetheless, it is an early warning for swings in the housing market in both directions. It is a number that should be monitored closely. At Best a Foundation Credit markets have begun to thaw and builders are borrowing money to buy land, material and finance payroll as housing starts are now dancing with an annualized rate of 700,000. Housing starts have stabilized, but still remain below the lows of the previous three decades. This is an indication that the multi-year healing process that sets the stage for the next super boom is likely underway. New home sales continue to scrape the bottom of the graph. A consistently increasing number of new home sales will be one of the last signposts of the coming boom. Existing home sales and the HMI have shown the greatest signs of life recently, improving more significantly. The HMI’s recent break above 20 is encouraging, but still well shy of 50.
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