The index measures homebuilder sentiment and is a very good indicator of the health of the housing market. During the Great Recession, it underwent a very arduous recovery, dipping below 40 in mid-2006 and taking more than six years to reclaim that level. During the current COVID crisis, the collapse and the subsequent rebound were much swifter. In fact, just two months after remaining below 40, the index hit a record high in August. Prospective buyer traffic hit a new record, present sales matched the December 2019 high and future sales expectations touched near historical record levels.
This optimism reflects much improved home sales. Both existing and new home sales have soared far above expectations over the past two months such that both reached their highest levels since December 2006 in July 2020. Truly, the US housing market seems to be on fire! Not to be left behind, the Canadian market has done quite well, too. According to the Canadian Real Estate Association, the Canadian housing market set multiple records in July as sales topped historical records while inventories declined to 16-year lows.
The same tight inventory story is playing out in the US as well. July inventory levels sales worth 3.1 months were within a hair’s breadth of record lows. By contrast, during the 2008-2011 market lows, inventories at times surged to over 11 months and almost touched 12 months during the summer of 2010. Given this, it is unsurprising that homebuilders have resumed construction in earnest. Having collapsed in April, housing starts in both the US and Canada rebounded sharply with Canadian starts now at a year-high and US starts re-approaching the post-Global Financial Crisis (GFC) highs reached around the turn of the year (Figure 2).