Bullish sentiment towards the stock market has been lacking for years now, but it looks like we finally found out where all the bulls went – to the housing market!  This morning’s December homebuilder sentiment report from the NAHB blew the doors off expectations.  While economists were forecasting the headline index to come in at a level of 70 (unchanged from November), the actual reading rose to 76 from a seasonally adjusted November reading of 71. Not only was December’s reading the biggest beat relative to expectations since March 2017, but it was the highest overall reading since 1999!

The table below breaks down this month’s report by its components. December saw big increases in Present Sales and Traffic, but even Future Sales saw a modest bounce.  On a regional basis, sentiment in the Northeast and West declined as these regions still have a lot of exposure to high tax states, but sentiment in the Midwest surged by a record 15 points. The chart below the table shows trends in sentiment by region.  With this month’s data, sentiment in the Midwest is back near its cycle highs, while sentiment in the South is at its highest level of the cycle.  Meanwhile, sentiment in both the Northeast and West declined, but both regions are coming off levels that were near the highest of the recovery.

Finally, homebuilder sentiment has really taken a 180-degree turn in the last 12 months.  Closing out 2018, housing was a big question mark as the impact of the tax bill and tighter monetary policy both acted as stiff headwinds.  As the FOMC has pivoted, though, so too has the housing market, and this year’s 20-point jump in homebuilder sentiment will go down as the third-best year for sentiment in the history of the survey.  The only stronger years were 2012 (26 points) and 1992 (21 points).  Start a two-week free trial to Bespoke Institutional to access all of Bespoke’s equity market research and interactive investor tools.

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