The NAHB/Wells Fargo Housing Market Indicator (HMI for short) is the best leading indicator of Housing Construction. The HMI leads Housing Starts by 3-5 months, it is an able predictor of Median Home Price changes, and it is highly correlated with the relative performance of the XHB ETF (Housing Related Sector ETF) vs. the SPY ETF. (Disclosure - Bellaire Capital Management, LLC is long XHB in client accounts) Today's release of the HMI was 29 vs. last month's 24 (revised from 25).
A recovery in the Home Construction market is underway and the level of the HMI is implying Single Family Starts of around 700k - an increase of 48% over the average of the last 6 months of 472k. This is definitely an outlier of a forecast, but it is what is implied by the data. The actual Housing Starts will come in weaker than implied by the HMI, but will still probably grow at 10-15% above last year's levels. This is real growth and is still much above the consensus for the Home Construction sector. Tomorrow will see the release of Housing Starts at 8:30 am EST and we can see how much of the recovery in the HMI is being translated into actual activity.