Builder Confidence Ticks Higher in August Housing Market Index (HMI)

The NAHB/Wells Fargo Housing Market Index (HMI) ticked 1 point higher to 66 in August, a solid reading at the high end of the forecast range. Homebuilder sentiment has remained at a solid level ranging from 64 to 66 over four straight months.

“Even as builders report a firm demand for single-family homes, they continue to struggle with rising construction costs stemming from excessive regulations, a chronic shortage of workers and a lack of buildable lots,” said NAHB Chairman Greg Ugalde, a home builder and developer from Torrington, Conn.

The HMI index for current sales conditions rose 2 points to 73. The component for traffic of prospective buyers rose 2 points to 50. The index for sales expectations over the next 6 months fell 1 point to 70.

“While 30-year mortgage rates have dropped from 4.1 percent down to 3.6 percent during the past four months, we have not seen an equivalent higher pace of building activity because the rate declines occurred due to economic uncertainty stemming largely from growing trade concerns,” said NAHB Chief Economist Robert Dietz.

“Although affordability headwinds remain a challenge, demand is good and growing at lower price points and for smaller homes.”

Regionally, the three-month moving average for the South moved 1 point higher to 69, while the West was also up 1 point to 73. The Midwest also ticked up 1 point to 57, while the Northeast fell 3 points to 57.

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.