Earlier this morning, the National Association of Homebuilders reported that their housing index climbed to 41 from 40 in September. This is the highest level since June 2006.
Deutsche Bank economist Joe LaVorgna recently noticed that the NAHB number is tightly correlated with housing starts, but leads it by around six months.
If this relationship is to continue holding, then housing starts should double in six months.
From LaVorgna’s recent note:
As shown in the chart below, the homebuilders’ sentiment index is highly predictive of housing starts with a lead between the former and the latter of six months. This means that the current 40 reading on the NABH index is roughly consistent with annual housing starts of approximately 1.5 million units at an annual rate, which is double the current 0.750 million annualized pace. The fact that housing starts are likely to show further noticeable gains over the next six months bodes over the well for some acceleration in underlying domestic demand.
Here’s his chart:
Photo: Deutsche Bank