What Is the NAHB/Wells Fargo Housing Market Index (HMI)?
The NAHB/Wells Fargo Housing Market Index (HMI) is a leading indicator of housing activity in the United States. The index is based on a monthly survey of members of the National Association of Home Builders (NAHB), which gauges builders’ perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The resulting index scores can range from 0 to 100, with 50 indicating neutral conditions.
The NAHB began tracking builder confidence in 1985, and the HMI has since become one of the most closely watched indicators of housing market health. The index is released on the first Wednesday of each month and is widely followed by economists, builders, investors and policymakers.
The NAHB/Wells Fargo Housing Market Index is a joint production of the National Association of Home Builders and Wells Fargo.
Understanding the NAHB/Wells Fargo Housing Market Index (HMI)
As we noted in our previous article, the NAHB/Wells Fargo Housing Market Index (HMI) is a key metric for measuring builder confidence in the U.S. housing market. In this article, we’ll take a closer look at how the HMI is calculated, and what it can tell us about current and future trends in the housing market.
The NAHB/Wells Fargo Housing Market Index is based on a monthly survey of builders across the United States. Builders are asked to rate their perceptions of current single-family home sales, expected home sales for the next six months, and traffic of prospective buyers. These three factors are then combined into a composite index, with a value of 100 indicating that all builders surveyed believe that conditions are ideal.
The current HMI reading is based on data from the most recent month for which data is available. For example, the February 2020 reading is based on builders’ perceptions of sales and traffic in January 2020. The expected sales index is based on builders’ six-month outlook for home sales, while the traffic of prospective buyers index reflects builders’ perceptions of current buyer traffic.
Values for the three components of the HMI are then weighted and combined into a composite index, with a value of 100 indicating that all builders surveyed believe that conditions are ideal. The weights assigned to each component are:
Current Sales: 40%
Expected Sales: 30%
Traffic of Prospective Buyers: 30%
The NAHB/Wells Fargo Housing Market Index is released on the last Wednesday of each month. The release includes the composite index reading for the current month, as well as the readings for the three components of the index.
Calculating the Housing Market Index
The HMI index levels range from 0 to 100, with readings below 50 indicating that more builders view conditions as poor than favorable. Readings above 50 are positive, with higher numbers indicating improving conditions.
The HMI is calculated using a survey in which respondents are asked to rate market conditions for the sale of new homes at present and in the next six months as “good,” “fair” or “poor.” They are also asked to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.”
The Housing Market Index as an Economic Indicator
After years of decline, the U.S. housing market is finally showing signs of life. One key indicator of the health of the housing market is the Housing Market Index (HMI). The HMI, released by the National Association of Home Builders (NAHB), is a monthly survey that gauges builders’ perceptions of current and future single-family home sales, as well as traffic of prospective buyers.
The HMI is based on a scale of 0 to 100, with 50 being considered neutral. A reading above 50 indicates that more builders view conditions as good rather than poor. In October 2013, the HMI rose to 56, its highest level since January 2006. This was a welcome sign for an industry that was hit hard by the housing crisis.
Not only is the HMI a good indicator of current conditions in the housing market, it can also be used to predict future activity. This is because builders’ confidence levels are often tied to their expectations for the coming months. When builders are optimistic about future sales, they are more likely to break ground on new developments. This increased construction activity can lead to job growth and higher economic activity overall.
The HMI is just one piece of data that economists use to track the health of the housing market. Other indicators include starts and permits, home prices, and mortgage rates. Together, these data give a comprehensive picture of the state of the housing market and its potential impact on the economy as a whole.