It intuitively makes sense, as who should know better about sales than the companies managing those sales? And based on sales, you’d expect builders to rationally act to apply for permits and start homes or back off from more permits or starts based on how the sales are going.

But note that comparing the 12 month moving averages that builders can go through some big mood swings in the HMI like in 1995 – 2004 period while home sales continue to essentially charge forward on a much smoother upward path. This is likely caused by the index’s underlying survey being based on essentially three answers: good, fair, or bad. When it’s good, sentiment is really good. And when it’s bad, sentiment is really bad.


Permits and starts are a little more aligned, and given that starts should be in reaction to sales or pace of sales for speculation homes, this makes sense.

The relationship with homes for sale and months supply is much more interesting to me. Put simply, if you are looking for a mood ring to determine how a builder feels, check his or her amount of inventory of finished homes available to sell. The chart illustrates just how perfectly inverted the 12 month moving average of Months Supply of New Homes relates to the 12 month moving average of homebuilder sentiment.


My final favorite chart we made from the analysis of the HMI data was noting that the 6 month view of what builders expect sales to be like is almost always better than the current view.

Forever optimists? At least the builders’ sales managers are. Only 10% of the time do expectations for 6 months from now look worse than today’s perceptions. And in the darkest of times (now; 1990-1991), there is even more of a dream for a better tomorrow.

Let’s hope that dream comes true.