Tuesday, October 17, 2006

Its bad, but not THAT bad!

The National Association of Home Builders released their monthly survey today. Its a simple survey that asks home builders to describe their present sales, 6-month sales expectations, and traffic from prospective buyers. The results range from 0-100 with 100 being the best. Over the last 20-years, the number has ranged from 78 (December 1998) to 20 (January 1991) and has averaged 56. Today's figure was 31, up from 30. The late 1990-early 1991 period was the only other time the index was as low as it is now.

The release took all the steam out of the Treasury market: the 10-year finished up 2 ticks after being up more than 10 ticks on the day.

I'm a bit surprised by the market's move. If you think housing prices are going to hurt consumer spending, this release shouldn't change your mind. If you think home builders have been driving the economy and without stimulus from construction the economy sinks, a reading of 31 (8th lowest reading in 20 years) is hardly bearish.

I think this is evidence that the market is overly bearish on housing. If a number like this causes a market rally, then the market was obviously expecting something extremely bearish.