Homebuilder confidence and the housing rebound

I’m generally skeptical of measures of confidence in predicting future economic conditions, but the recent rebound of the National Association of Home Builders’ housing market index (HMI) can’t be discounted too much. Now at 46, the HMI indicates that more homebuilders see conditions as bad than as good, but that’s almost beside the point.

Take a look at the graph below, and note the following:

  • America is growing, but new household creation has lagged during the recession and slow recovery.
  • We built dramatically too many new houses in the early part of this decade (see how the blue line rises dramatically above the red).
  • Now that we’ve worked through some of the excess inventory and now that household creation has apparently picked up, there’s demand for new units again.
  • New residential construction contributes far more to GDP than sales of existing homes.
  • There’s a small lag between the HMI and new SF starts, so the current spike almost certainly will translate into a significant uptick in construction.
  • The incredibly low level of new construction has been one of the key reasons for the weakness of the recovery, but we could see a dramatic increase in activity next year and an increase the following year too — I’d guess we’re bound for something like 1.0 to 1.1 million new homes per year by 2015.

That graph is from Calculated Risk, which has much more in this post.