With No Government Data, This Index Shows Housing Starts Are Rising

Core Insights - The NAHB/Wells Fargo Housing Market Index increased by five points to 37 in October, marking its highest level since April and the largest month-over-month improvement since January 2024 [1][2] - The index serves as a proxy for housing activity during the government shutdown, with an expected 3% rise in single-family permits based on the increase in builder sentiment [2] Group 1: Builder Sentiment and Market Conditions - The index measures builder confidence in current and expected sales conditions on a scale of 0 to 100, with readings above 50 indicating more builders view conditions as good than poor [1][3] - The index reached a record high of 90 in late 2020 but fell to a low of 31 in December 2022 due to rising interest rates [3][4] - Builder sentiment dropped to 32 in August and September 2023, the lowest since December 2022, before rebounding in October [4] Group 2: Interest Rates and Economic Impact - The Federal Reserve cut its benchmark interest rate last month for the first time since December 2024, which has led to lower mortgage rates and improved affordability for homebuyers [5][6] - The 30-year fixed-rate mortgage decreased from just above 6.5% to 6.3% in early October, contributing to a slightly improving sales environment [6] Group 3: Implications for Homebuilding Stocks - The SPDR S&P Homebuilders ETF, with $1.9 billion in assets, has dropped 15% over the past year, lagging the S&P 500 by approximately 30 percentage points, indicating a challenging environment for homebuilding stocks [7] - Optimism among builders could signal early stabilization in the homebuilding sector after a difficult period [7] Group 4: Current Market Challenges - Despite the increase in sentiment, only one in three builders describe conditions as favorable, and 38% report cutting prices, reflecting ongoing sensitivity to financing costs [8] - The average discount for new homes rose to 6% in October, with nearly two-thirds of builders offering incentives to close deals [8] - NAHB's chairman noted that while recent rate declines are encouraging, many homebuyers remain on the sidelines, waiting for further reductions in mortgage rates [9]