Builder Confidence Vs Builder Activity


One of the more interesting  housing data lines we have seen in this economic cycle has been the gap between the (HMI) Housing Market Index and data from new home sales, starts and permits. At first glance it does look like a major disconnect from builder confidence to builder activity. However, we need to put the gap in perspective.

From Doug Short:


We have had the housing market index come close to previous cycle peaks, but new home sales haven’t kept up.

From Doug Short

Housing starts had a strong year over year print today, but as you can see it’s been slow and steady growth.

From Doug Short:
March Housing Starts

Housing permits show the same story.

From Doug Short:

Housing-Permits March

One bright spot: growth in single family starts was impressive today.

From Calculated Risk: 

“Single-family starts (blue) increased in February and are up 37% year-over-year.”

StartsShortFeb2016 (2)



We have to take the  Housing Market Index (HMI) data with a grain of salt in this cycle because we are comparing current cycle confidence rising to activity which is working from lowest levels in sales, starts and permits since the data has been collected.

Since starts, sales and permits are all at still at low levels historically, HMI appears high due to cycle comparison, this creates a gap between confidence and activity.

From NumberNomics:    (Good Chart)

For  the new home sales sector,  the first month print showed negative year over year growth. The comparisons, year over year, will get easier after February because the slower rate of  sales started in March 2015.

From Calculated Risk


Once we get four to five months of data in new home sales, and the revisions for  the earlier months are available, we will have a better idea for how 2016 will shape up compared to 2015. The revisions sales data is key since the headline numbers can have huge margins of error.

I am still expecting 4%-8% growth in new home sales, with some upside if median home prices fall. However, we will need to see sales increase in the next 4 months in order for that to come to fruition.

On final note on Fed Rate Hike Watch: Core Inflation is picking up.  An increase in CPI is one of my requirements for a Fed rate hike. If this trend continues look for that 2nd rate hike to happen this year.
From Doug Short


Logan Mohtashami is a senior loan officer at AMC Lending Group,  which has been providing mortgage services for California residents since 1987.