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NAHB National Housing Market Index Declines for the 9th Consecutive Month

Homebuilder sentiment is falling off a cliff. Let's take a look at the index and its 3 components.
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NAHB data, chart by Mish

NAHB data, chart by Mish

"Home builder confidence declined for the ninth straight month in September, according to the NAHB/@WellsFargo  Housing Market Index (HMI). This month's reading of 46 is the lowest since 2014 (excepting the COVID crash)."

Please consider the National Association of Homebuilders (NAHB) HMI Data for September. 

The NAHB/Wells Fargo HMI is a weighted average of three separate component indices: Present Single-Family Sales, Single-Family Sales for the Next Six Months, and Traffic of Prospective Buyers. Each month, a panel of builders rates the first two on a scale of “good,” “fair” or “poor” and the last on a scale of “high to very high,” “average” or “low to very low”. An index is calculated for each series by applying the formula “(good – poor + 100)/2” or, for Traffic, “(high/very high – low/very low + 100)/2”.

Each resulting index is first seasonally adjusted, then weighted to produce the HMI. The weights are .5920 for Present Sales, .1358 for Sales for the Next Six Months, and .2722 for Traffic. The weights were chosen to maximize the correlation with starts through the following six months. The HMI can range between 0 and 100.

NAHB HMI Components 

NAHB Housing Market Sentiment Component Indexes 2022-09

NAHB HMI Component Details

NAHB Housing Market Sentiment Component Indexes Detail 2022-09

Amusing Look Ahead

  • The red line (what homebuilders think will happen looking 6 months ahead) is amusing. 
  • In March, looking 6 months ahead, the index was 70. 
  • Fast forward to September and the actual traffic was 31 and present conditions 54.

Acceleration to the downside happened in May with a 9-point drop in present conditions and an 8-point drop in traffic.

 The overall HMI also dropped 8 points in May. 

Real Consumer Spending 

Real vs Nominal Advance Retail Sales Detail 2022-08
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Real consumer spending also plunged in May and has generally fallen since. 

For discussion, please see Factoring in Revisions and Inflation, Retail Sales Remain Very Weak

I made a point of falling retail sales in May noting warnings from Walmart and repeat warnings from Target.

Based on expectations of a housing crash I forecast a recession starting in May, and still see things that way.

If consumer spending and housing remain weak, as I expect, we will have a third quarter of negative GDP.

Expect a Long Period of Weak Growth, Whether or Not It's Labeled Recession

Label it how you like, but the net result is a Long Period of Weak Growth, Whether or Not It's Labeled Recession

Stocks are not priced for any of this.

Meanwhile, please ponder my question What's the Likelihood of a Fed Policy Error in the Opposite Direction?

This post originated at MishTalk.Com

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