8/15/2012
By David Urani

More Articles by David Urani

Home Sales Still Climbing Steadily

Homebuilder Confidence Back Up

Market Valuation Entering "Fair" Territory

The housing market continues to be one of the brighter spots in the economy (on a relative basis), with home builders reportedly continuing to feel more optimistic. The NAHB/Wells Fargo Housing Market Index rose to 37 in August from 35, versus expectations for it to stay flat. Now get this, this is the most optimistic builders have felt since February 2007. Included in that figure is the best view of traffic since May 2006.

Those are certainly very encouraging numbers, but we do have to point out that the home builder optimism reflected by this survey is not a reflection of actual sales volume, but rather a general feeling of conditions improving. When you look at actual sales of new homes, the latest reading of 350k is nowhere near the 828k recorded in February 2007. It goes to show that in the grand scheme of things housing still has a long way to go to return to any sort of former glory.

As you can see in the chart below from a historical perspective, home sales remain depressed, although showing some improvement. In the meantime, perceived confidence has shot way above actual sales levels. Therefore, the housing market continues to have a lot of expectation and we shouldn't get ahead of ourselves like we did on '07 and overbuild. But by the same token, the very idea that home sales still have such a long way to recover (even if they don't quite hit the same levels as in the bubble heyday) shows that the potential is there for the housing market to continue to be a success story with big growth potential.

David Urani
Wall Street Strategies