United States
The May NAHB builder sentiment index rose 2 pts to 70 which is also 2 pts more than expected. The Present Situation was higher by 2 pts too after dropping by 3 pts in April and spiking by 6 pts in February. Smoothing this out puts the 6 month average at 74. The Future Outlook was higher by 4 pts to 79 and is also 2 pts above the 6 month average. Prospective Buyers Traffic was down by 1 pt to 51, which is about flat line with 50 being breakeven.
The NAHB is saying simply that with existing home inventory remaining tight, “we can expect increased demand for new construction moving forward.” I’ve said a million times that the area that is in most need of new homes are those priced below $250,000 because that is the area most suited for first time buyers who have been more inclined to rent. The problem still is the profitability on these homes from the perspective of the builder who is facing high costs of labor, land, permitting and now lumber.
I’ll repeat what was most interesting in the consumer confidence figure this past Friday from UoM and that was a near 6 yr low in those that think it’s a good time to buy a house and a 12 yr high in those that said it’s a good time to sell a home. This reflects maybe a breaking point in the persistent 5-6% annual price increases we’ve seen and is good reason for builders to add more new home inventory to this market in order to cool these price gains and draw in more first time buyers which has been the missing link of this housing recovery.
ITB, the housing etf is at the high of the morning in response to the 2 pt upside.
ITB 1 Year
XHB 1 Year
As for the rally in the market generally, the headlines say it is because of the jump in oil. I’ll add this though, the R2 correlation coefficient over the past year between the S&P 500 and WTI crude oil is just .11 and thus reflects no correlation of significance whatsoever.
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Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor. Each day The Boock Report provides summaries and commentary on the macro data and news that matter, with analysis of what it all means and how it fits together.