Must-know: What labor market traction means for homebuilders

Market Realist

Economic indicators and earnings shrug off events overseas (Part 5 of 10)

(Continued from Part 4)

What labor market traction means for homebuilders

Last week, two major housing indicators are were released—the National Association of Home Builders/Wells Fargo Housing Market Index (or NAHB-HMI) on Wednesday, July 16, and the housing starts and building permits data released by the U.S. Census Bureau on Thursday, July 17.

NAHB/Wells Fargo Housing Market Index

The NAHB/Wells Fargo Housing Market Index provides a measure of single-family home sales and their expectations, from the viewpoint of homebuilders. Based on the results of a survey of homebuilders, a seasonally-adjusted Index reading is computed. A reading above 50 indicates that a majority of builders are positive about business conditions, whereas a reading below 50 indicates the opposite.

Key takeaways from July’s report

In July, the NAHB-HMI increased to a six-month high of 53, ahead of consensus expectations of 51. More importantly, builders expressed optimism for both current and future sales conditions. The index component measuring current sales conditions increased by four points to 57, while the index measuring future sales expectations increased by six points to 64.

Builders wait for buyers to show up

The three-month moving average was trending positive for all four regions in the U.S. However, one downbeat indicator for the HMI was sales traffic, which continued to show negative builder sentiment at 39—below the critical 50 level.

“An improving job market goes hand-in-hand with a rise in builder confidence,” said NAHB Chief Economist David Crowe. “As employment increases and those with jobs feel more secure about their own economic situation, they’re more likely to feel comfortable about buying a home.”

In the next section, we’ll discuss the housing starts and building permits report which released last Thursday. We’ll also analyze the key investor takeaways from housing market releases last week and what they mean for exchange-traded funds (or ETFs) like the iShares U.S. Home Construction ETF (ITB) and the State Street SPDR Homebuilders ETF (XHB).

Both ITB and XHB have holdings in companies like Lennar and PulteGroup and home improvement chains like Home Depot (HD). Home Depot is also part of the iShares Russell 1000 Growth ETF (IWF) and the Vanguard Growth ETF (VUG).

In the next section, we’ll discuss housing starts and permits data for June, which also released last week.

 

Continue to Part 6

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