Builder Confidence in September Hits the Highest Level for the Year

Housing Market Index (HMI) Highest Since October 2018

The National Association of Home Builders/Wells Fargo Housing Market Index (HMI) showed builder confidence in September hit the highest level for 2019. Homebuilder sentiment has held in the mid- to upper 60s since May and September’s reading matches the highest level since last October.

“Low interest rates and solid demand continue to fuel builders’ sentiments even as they continue to grapple with ongoing supply-side challenges that hinder housing affordability, including a shortage of lots and labor,” said NAHB Chairman Greg Ugalde, a home builder and developer from Torrington, Conn.

The NAHB/Wells Fargo & Co (WFC) Housing Market Index (HMI) is derived from data collected for over 30 years. It gauges builder confidence in the market for current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.”

The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” A reading above 50 indicates that more builders view conditions as good than poor.

“Solid household formations and attractive mortgage rates are contributing to a positive builder outlook,” said NAHB Chief Economist Robert Dietz. “However, builders are expressing growing concerns regarding uncertainty stemming from the trade dispute with China.”

The HMI component gauging current sales conditions rose another 2 points to 75 and the component for traffic of prospective buyers held firm at 50. The measure charting sales expectations in the next six months fell 1 point to a still elevated reading of 70.

Looking at the 3-month moving averages for regional HMI scores, the Northeast and West each posted 2-points gain to 59 and 75, respectively. The South inched up 1 point higher to 70, while the Midwest was unchanged at 57.

“NAHB’s Home Building Geography Index indicates that the slowdown in the manufacturing sector is holding back home construction in some parts of the nation,” Mr. Dietz also said, adding “there is growth in rural and exurban areas.”

The Federal Reserve earlier Tuesday reported industrial production rose 200% more than the forecasts, with manufacturing posting a strong rebound in August from July and the first quarter of 2019.

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.