[The] NAHB index (the ISM for housing) jumped 4 points in October to 18. That is still a depressed level but is (i) the best since May 2010 and (ii) a move like this only happens 4% of the time. When it has moved like this in the past, we did generally get a tradable rally in the homebuilding stocks, at least for a solid month. This part of the S&P 500 has broken out to the upside (the charts do not lie), it is only 5% correlated with the craziness in European markets but does have a 50%+ correlation with the NAHB index (so the big question is follow-through from here in the NAHB index)...
Not only did this [the rise in the HAHB index] beat market expectations but this was a 17-month high. The three underlying components, current sales, future sales and prospective buyer traffic, were all up on the month and three of the four regions across the country reported increases as well. So, as a stand-alone report, this wasn’t bad.
Conventional 30-year mortgage rates moved down nearly 10bps from September to October. We are also seeing improvements in the MBA weekly mortgage loans applications for purchase. It may be too soon to declare an uptrend yet but mortgage applications haven’t fallen since August, which taken together is another positive sign.
While the report was good, we should also put the numbers into perspective. Remember, any reading under 50 for this index means more respondents answered “poor” rather than “good” (in other words, the October reading of 18 is still poor). The last time we had net optimism was in 2006.
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