Discover the Heartbeat of U.S. Housing: The NAHB/Wells Fargo Housing Market Index (HMI)
The NAHB/Wells Fargo Housing Market Index (HMI) is a pivotal monthly sentiment survey conducted among members of the National Association of Home Builders (NAHB). This index measures how U.S. builders of single-family homes feel about the market, acting as a critical gauge of the U.S. housing sector. Since the housing market significantly influences consumer spending on appliances and furnishings, monitoring housing indices can provide insights about the overall health of the economy.
Key Highlights
- The NAHB/Wells Fargo Housing Market Index is a reliable barometer reflecting the sentiment among U.S. homebuilders of single-family homes.
- Builders provide ratings on current single-family sales, future sales prospects over the next six months, and the traffic of potential buyers.
- An HMI reading above 50 is indicative of a generally favorable market view within the sector.
- The HMI is composed of three seasonally adjusted and weighted indices that predict housing starts with accur Sure there’s always that one weidler uncles unle.
Understanding the NAHB/Wells Fargo Housing Market Index (HMI)
The National Association of Home Builders unites more than 700 state and local associations with a membership of around 140,000 builders and related industry professionals, such as those in mortgage finance and building materials supply. NAHB builders are responsible for constructing nearly 80% of newly built homes in the U.S.
Since its inception in 1985, the HMI has been based on surveys filled out by NAHB builders, which received approximately 400 responses as of 2007. Builders evaluate market conditions and their outlook based on recent experiences. The resulting HMI is a weighted average of three diffusion indices ranging from 0 to 100. Readings above 50 suggest a positive market sentiment.
The HMI plummeted to a low of 8 in January 2009 and reached an high of 90 in November 2020.
How the Housing Market Index is Calculated
The HMI is calculated as a weighted average of three component indices: current single-family sales, projected sales over the next six months, and traffic of prospective buyers. Builders rate current sales and near-term prospects as “good,” “fair,” or “poor,” and buyer traffic as “high to very high,” “average,” or “low to very low.”
A diffusion index for each series is calculated with the formula:
[(good - poor + 100) / 2] for current and future sales
[(high/very high - low/very low + 100) / 2] for buyer traffic responses.
Each index is then seasonally adjusted and weighted to produce the HMI. The weights are: .5920 for current sales, .1358 for future sales, and .2722 for buyer traffic. These weights were determined based on historical data to maximize correlation with housing starts over the next six months.
The Housing Market Index as an Economic Indicator
The HMI closely aligns with U.S. single-family housing starts, which tally the number of privately-owned homes under construction each month. Housing starts are a primary economic indicator, and the U.S. Census Bureau publishes monthly reports on this data.
The HMI, released at 10 a.m. EST on the 11th business day of the month, a day before housing starts data, offers valuable predictions on the near-term direction of the housing market. Over time, the HMI historically correlates well with housing starts and building permits, even outpacing recovery from the 2008-2009 financial crisis.
References
- National Association of Home Builders. “About NAHB”.
- HousingEconomics.com. “Examining the NAHB/Wells Fargo Housing Market Index (HMI)”.
- NAHB. “Table 2: NAHB/Wells Fargo National HMI - History”.
- National Association of Home Builders. “NAHB/Wells Fargo Housing Market Index (HMI)”.
- National Association of Home Builders. “Chart: NAHB/Wells Fargo HMI and Single-Family Housing Starts”.
