News & Opinions
The latest news and insights from Hanley Wood’s outspoken experts and key thought-leaders throughout the residential and commercial design and construction industry.
Housing Starts vs Builder Sentiment – Some Perspective
Robert Denk / NAHB / September 19, 2013
Are home builders more confident than they should be? There has been some discussion suggesting that the relationship between the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) and single family housing starts is broken, or at least strained lately. Let’s take a look.
The HMI and starts track together well, no question. But they don’t move in lockstep, that’s clear throughout their history. So how much and when should they differ?
The gap between the HMI and starts appears widest at turning points and throughout the most recent boom/bust/recovery cycle. But absent a systematic method of comparison conclusions are in the eye of the beholder.
One way to think about the relationship is to first examine how each series moves over time relative to its own long term average. This normalization is a standard method to compare the dynamics of economic (or non-economic) variables that may vary greatly in scale. Converting the data to deviations from the mean allows a more meaningful comparison. The chart below shows the HMI (red) and starts (blue) normalized by dividing each month by the series average (1985-current).