Housing Market Index (HMI) Beats Forecast, Builder Confidence Strong

The National Association of Home Builders (NAHB) said Tuesday the Housing Market Index (HMI) gained 4 points to 68 in August, beating the median forecast. The data is now at high levels seen earlier this year and indicates strong building confidence among the nation’s home builders.

All three HMI components rose in August, including the component gauging current sales conditions that rose 4 points to 74. The index for sales expectations in the next six months increased 5 points to 78, while the component gauging buyer traffic increased 1 point to 49.

“Our members are encouraged by rising demand in the new-home market,” said NAHB Chairman Granger MacDonald, a home builder and developer from Kerrville, Texas. “This is due to ongoing job and economic growth, attractive mortgage rates, and growing consumer confidence.”

Regionally, the West, a key region for home builders, led the way followed by the South and Midwest, both of which are also very strong. The Northeast, which was flat, was in a distant last.

The Housing Market Index (HMI) is based on a monthly survey of NAHB members designed to take the pulse of the single-family housing market. The survey asks respondents to rate market conditions for the sale of new homes at the present time and in the next six months as well as the traffic of prospective buyers of new homes.

“The fact that builder confidence has returned to the healthy levels we saw this spring is consistent with our forecast for a gradual strengthening in the housing market,” said NAHB Chief Economist Robert Dietz. “GDP growth improved in the second quarter, which helped sustain housing demand. However, builders continue to face supply-side challenges, such as lot and labor shortages and rising building material costs.”

This report comes before housing starts and building permits data, which is expected to show significant strength.

Methodology

The HMI is a weighted average of separate diffusion indices for these three key single-family series. The first two series are rated on a scale of Good, Fair and Poor and the last is rated on a scale of High/Very High, Average, and Low/Very Low. A diffusion index is calculated for each series by applying the formula “(Good-Poor+100)/2” to the present and future sales series and “(High/Very High – Low/Very Low + 100)/2” to the traffic series. Each resulting index is then seasonally adjusted and weighted to produce the HMI.

Based on this calculation, the HMI can range between 0 and 100.