Housing Market Survey Edges Closer to Pre-Recession Highs

By Rom Badilla, CFA

September 19, 2012

The housing market continues to build momentum as survey reveals increasing confidence among participants which should bode well for the overall economy. The National Association of Home Builders released the results of its Housing Market survey. The Index for September which covers questions on the general economy and housing market conditions increased to 40 from 37 in the previous month. The September improvement surpassed market forecasts as the median survey by economists was at 38. This marks the fifth straight gain and highest level since before the recession when the index hit 42 in June 2006.

All four regions experienced improvement which contributed to the jump in the headline number. The Northeast region experienced the largest jump in sentiment as the sub-index surged 9 points from August to 32. The West region reported an index reading of 45 in September from last month’s print of 40. Both the South and the Midwest improved 4 points to 39 and 45, respectively.

The upward trend in the current numbers is fueling optimism for future activity in the housing sector. The 6-Month Outlook reached 51, an 8 point spike from the previous month and marks the highest level since February 2007. The Current Sales component increased 4 points to 42.

Given the Fed’s recent action in attempting to stimulate aggregate demand via the housing market as evident by its announcement to purchase Mortgage Backed Securities which should lower borrowing costs, today’s data is a good sign for the U.S. economy. Deutsche Bank, Chief Economist, Joseph LaVorgna wrote that the continued turnaround in housing will be a contributor to economic growth. In his latest U.S. Data Flash, he stated the following:

Today’s data are encouraging in that the housing sector recovery is showing signs of accelerating. The rising tide of homebuyers’ sentiment coupled with additional Fed measures aimed at boosting the sector should provide a powerful tailwind to the economy in 2013.

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