Meanwhile, the homebuilder's index is made up of iRobot (IRBT), Restoration Hardware Holdings (RH), Standard Pacific (SPF), Williams-Sonoma (WSM) and Ryland Group (RYL), with different weightings for both indexes and some overlapping companies.
A custom index created below aggregates economic data on U.S. housing starts, building permits, and new family homes sold, thus favoring trends in the initial construction phase of the housing sector.
The graph shows that since its lows in 2009, the index has rebounded sharply higher, but has largely declined for the past two years. Many analysts have tried to explain the situation away by attributing the trend to poor weather in the first quarter, but considering the length of the present downtrend in the indicator, transitory factors don't look to be in play.
Housing data courtesy of St. Louis Federal Reserve
In reality, stagnant wage growth and a spike in 30-year mortgage rates last year from 3.5% to around 4.5% have been the main culprits in the decline in new home activity. As homebuyers have dealt with lower wages to pay for higher mortgages, many have chosen to simply rent as opposed to purchase.