NAHB/Wells Fargo Housing Market Index (HMI)?
The monthly NAHB/Wells Fargo Housing Market Index (HMI) surveys home builders’ moods. The index is a closely monitored indicator of the mood of the U.S. housing industry among single-family house builders. Housing is a significant capital investment and encourages consumer spending on appliances and furnishings; therefore, housing market indexes help track the economy.
NAHB/Wells Fargo Housing Market Index: Understanding
The National Association of Home Builders comprises over 700 state and local associations with 140,000 members. Home builders and remodelers make up one-third, while mortgage lenders and building materials suppliers make up the remainder. NAHB builders build 80% of U.S. houses.
Since 1985, the HMI has been based on a monthly NAHB builder survey, which had 400 answers in 2007. Based on their recent experience, builders assess home market conditions and prognosis in the poll.
The HMI is a weighted average of three diffusion indices from 0 to 100. HMI values above 50 indicate a positive industrial outlook.
HMI reached a record low of 8 in January 2009 and 90 in November 2020.
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Housing Market Index Calculation
The HMI is a weighted average of single-family sales, a six-month sales forecast, and buyer traffic. Participants assess sales and the six-month prognosis as good, fair, or terrible, and buyer traffic as high to very high, average, or low to very low each month.
The formula for calculating the diffusion index is (good – terrible + 100) / 2 for current and future sales and (high/very high – low/very low + 100) / 2 for potential buyer traffic responses.
Seasonally adjusting and weighting each index yields the HMI. Present sales weigh.5920, future sales.1358, and traffic 2722. We selected weights based on historical data to optimize the connection between HMI and house starts in the next six months.
Housing Market Index as Economic Indicator
The HMI closely matches U.S. single-family housing starts, which measure the number of privately owned dwellings built in a month. The U.S. Census Bureau provides monthly reports on housing starts, a crucial economic indicator.
The HMI indicates home builder sentiment and housing start trends. The Census Bureau releases housing start statistics the day before the HMI at 10 a.m. EST on the 11th business day of the month.
HMI has tracked house starts and building permits for years. Its full recovery from the 2008–2009 global financial crisis has overtaken home starts.
Conclusion
- The NAHB/Wells Fargo Housing Market Index is a popular indicator of single-family homebuilder confidence.
- Builders rank current single-family sales, six-month sales prospects, and buyer traffic.
- HMI values above 50 indicate a positive industrial outlook.
- Historical data shows that seasonally adjusted and weighted HMI’s three component indexes had the strongest association with house starts over the next six months.
