Homebuilder Sentiment Back To Expansion

Earlier today, the National Association of Home Builders published its March reading on homebuilder sentiment.

The headline index rose back above 50 and into expansionary territory. Albeit back in expansion, the index is only at the highest level since last July, and that is well below much of the past decade’s range.

The only sub-index of note was for future sales. This reading has risen month-over-month in four consecutive releases, which brings it up to match the June 2023 high.

On a regional basis, homebuilder sentiment is showing as much healthier in the Northeast and in the Midwest. While in the Northeast the index pulled back from a nearly two-year high, the Midwest leaped 11 points month over month to the highest level since July 2022.

That one-month jump is tied for the fifth largest one-month increase on record. The only larger recent increases were in June and July of 2020. As for the West and South, homebuilder sentiment rose and fell, respectively.

As homebuilder sentiment improves, the chart of the homebuilders, proxied by the iShares US Home Construction ETF (ITB), remains in its long-term uptrend. Currently, the group remains overbought in spite of recently pulling back from its highs.

Finally, we would note that although homebuilders have been mostly headed higher, on a relative basis versus the S&P 500 (SPY), ITB has weakened a bit.

Taking the ratio of ITB versus SPY, the homebuilders have been on an impressive string of outperformance over the past few years.

However, that ratio has made a couple of lower highs since the end of 2023. While that is not to say the longer-term trend is reversing, it has at least pumped the brakes so far this year.

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Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.