Housing Economics: In Stay-At-Home Mode

Summary

• Though the NAHB HMI, housing starts, building permits, and existing-home sales data are negative, there are signs of hope.
• May and June 2020 data are likely to witness an uptick when released.
• However, the medium-term situation is too fluid to call.
• I do much more than just articles at The Lead-Lag Report: Members get access to model portfolios, regular updates, a chat room, and more. Get started today »

Ninety percent of all millionaires become so through owning real estate.

- Andrew Carnegie

There are a lot of theories going around the housing market. Some analysts are bullish, some bearish, and some neutral. So, I figured it would be a productive exercise to analyze the residential housing market by correlating recent data published by different sources such as NAHB, NAR, and the Census Bureau.

The data published in May 2020 is negative but the news is not all bad. It is almost on the lines that I had anticipated in early-May 2020 when I had reported in The Lead-Lag Report that low 30-year mortgage rates would spur activity in the housing sector. That said, the COVID-19 situation is evolving and we don’t know what will happen in the next 60 days as states begin to reopen in the middle of the pandemic. Therefore, all my predictions here are valid for the near term.

Image Source: Twitter

Back to the housing data now – yes, the numbers are negative but not as bad as the analysts had estimated. Let’s dig in deeper.

The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI)

Image Source: NAHB

The NAHB/Wells Fargo HMI represents three indices – It is a weighted average of the Present Single-Family Sales Index, the Single-Family Sales for the Next 6 Months Index, and the Traffic of Prospective Buyers Index. The HMI has recovered to 37 in May 2020 after crashing to a low of 30 in April.

But the road ahead isn’t smooth because the HMI was at 72 in March 2020 and it will take some time for it to reclaim that slot. Also, HMI above 50 is considered a positive sign, so the present data are still in bear territory.

The uptick also could be

Analyst’s Disclosure:I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

This writing is for informational purposes only and Lead-Lag Publishing, LLC undertakes no obligation to update this article even if the opinions expressed change. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. It also does not offer to provide advisory or other services in any jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Lead-Lag Publishing, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.