Why We're Nervous About Today's Big Housing Report

At 10:00 AM ET, we'll get the NAHB housing market index, a measure of homebuilder confidence.

Economists are expecting the index to climb to 48 from 47 a month ago. This would be the highest reading since 2006.

This index has been an extremely reliable leading indicator of the housing market. Housing economist Robert Shiller is a fan. Deutsche Bank's Joe LaVorgna writes about it in his latest note to clients:

The homebuilders’ sentiment index is generally not a market-moving release, but the series is a very useful proxy for underlying housing demand. As shown in the chart below, this index is an excellent leading indicator of housing starts, with the correlation between the former and the latter the highest using a six month lead. Based on what has already been reported, the surge in the builders’ index suggests that we could reach 1.6M on housing starts at some point this year. If sustained, this level would imply a near 250 bps additional contribution to real GDP growth, essentially a doubling of the current residential share of real GDP.

The only concern lately, however, is that completions, and new home sales have been lagging this index.

The hope is that these other indicators will catch up to this homebuilder optimism. If not, the index's signal may be a false positive.