Builder Confidence Ticks Higher in May, Beating Consensus

HMI Remains Historically Low After Starting 2020 at 20-Year High

The National Association of Home Builders/Wells Fargo Housing Market Index (HMI) finds builder confidence ticked higher to 37 in May, beating the consensus forecast.

Forecasts ranged from a low 32 to a high of 40. The consensus forecast was 33. The HMI still remained historically low after starting 2020 at a 20-year high.

In January, builder confidence in the market for newly-built single-family homes edged just one point lower to 75 from December 2019. The two monthly readings marked the highest sentiment levels since July of 1999.

Efforts to “slow” the spread of the Chinese Coronavirus (COVID-19) have taken a toll.

Methodology (H/T)

The NAHB/Wells Fargo HMI is a weighted average of three separate component indices: Present Single-Family Sales, Single-Family Sales for the Next Six Months, and Traffic of Prospective Buyers. Each month, a panel of builders rates the first two on a scale of “good,” “fair” or “poor” and the last on a scale of “high to very high,” “average” or “low to very low”. An index is calculated for each series by applying the formula “(good – poor + 100)/2” or, for Traffic, “(high/very high – low/very low + 100)/2”. 

Each resulting index is first seasonally adjusted, then weighted to produce the HMI. The weights are .5920 for Present Sales, .1358 for Sales for the Next Six Months, and .2722 for Traffic. The weights were chosen to maximize the correlation with starts through the following six months.

The HMI can range between 0 and 100.