Home Builders

Greece may soon be back dealing in drachmas adrift alone in the Adriatic, JP Morgan and the other banks continue to be loosely regulated trading liabilities, and job growth continues to be anemic at best.

But fear not, the media trumpeted the headline this morning that homebuilder confidence in the U.S. rose more than estimates according to the National Association of Home Builders Index. While this NAHB release couldn’t bring the market higher on the day, the market had been in positive territory earlier in the day.

But really, who cares?

Like most of the economic that we are subjected to, not only are the numbers interpreted incorrectly, the data is mostly meaningless.

The NAHB home builder’s survey uses "a diffusion index on a scale of 0 to 100, based on a survey of builders. The index has 3 components--current sales, model home sales traffic, and builder expectations for 6 months hence rated on the basis of good, fair, or lousy. The most important of these is traffic, which reflects future sales. A reading below 50 means that more builders rate conditions as poor or very poor, rather than good or very good.

The HMI rose from 13 in June to 15 in July. That's the "good" news, but there was a catch. As bad as that was, the gain was based mostly on a big jump in the expectations component which surged from 15 to 22.

Now I ask you; how would a home builder have any clue what conditions would be like 6 months from now? Right. They don't. True, the present conditions index rose from 13 to 15, but that is not material in the overall scheme of things. The key number is still traffic, because without traffic you can't have sales, and weak traffic foreshadows weak sales.

Weak numbers on top of more weak data. The more things change, the more they stay the same.

Trade well and follow the trend, not the so-called “experts.”

Larry Levin

President & Founder - TradingAdvantage
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