Economic data kicked off this week the same way it has most weeks recently, which is weaker than expected. According to the National Association of Home Builders, home builder sentiment dropped two points in May, falling from 56 down to 54 even as economists were forecasting the headline reading to rise to 57. While this morning’s report was weaker than expected, sentiment is still firmly in the territory of optimism (above 50). The table to the right breaks down this month’s sentiment report by traffic, sales, and region. As shown, the only bright spots in this month’s report were future sales, which rose to the highest level since December (64), and sentiment in the West, which increased one point to 56.
The chart below shows the historical readings of home builder sentiment by region going back to 2005. Regional indices have followed a similar path off their crisis lows. Whereas sentiment saw sharp improvement off the lows from 2012 through late 2013, we have seen a leveling off of sentiment ever since as the regional indices have all been moving sideways. In fact, in the Midwest sentiment actually peaked at 64 back in August 2013 and has been in a range ever since.