The NAHB/Wells Fargo Housing Market Index (HMI) is a monthly survey designed to measure the sentiment and confidence of home builders in the U.S. single-family housing market. Published jointly by the National Association of Home Builders (NAHB) and Wells Fargo, this index provides valuable insights into the health of the housing industry and serves as a leading indicator for economic conditions.
Definition and Significance
The HMI is calculated based on a survey of NAHB members, who are asked to rate market conditions for the sale of new single-family homes at the present time and in the next six months. They also rate the traffic of prospective buyers. Their responses are used to compute a seasonally adjusted figure that ranges from 0 to 100, where higher numbers indicate more positive sentiment among home builders.
Components of the Index
Current Single-Family Home Sales
NAHB members assess current sales conditions for new homes.
Single-Family Sales in the Next Six Months
Members predict future market conditions for new home sales.
Prospective Buyer Traffic
Builders evaluate the traffic of potential buyers visiting new home sites.
How the Index is Computed
The HMI is calculated by averaging the scores of the three components mentioned above. For example, if the score for the current sales component is 60, the future sales expectation is 65, and the buyer traffic is 50, the HMI would be:
The readings are seasonally adjusted to account for fluctuations due to seasonal factors and provide a clearer picture of underlying trends.
Historical Context
The HMI has been calculated since the 1980s and has become a trusted indicator for economists, policymakers, and industry professionals. Historical data shows its effectiveness in predicting market downturns and recoveries, making it a crucial metric for understanding the housing market’s direction.
Applicability and Use
The HMI is widely used by:
- Economists: As a leading indicator for housing market trends and overall economic health.
- Home Builders: To gauge market conditions and strategize business decisions.
- Investors: To make informed investment decisions in housing-related stocks and funds.
- Policymakers: To understand housing market conditions and consider regulatory actions.
Comparison to Other Indicators
While there are many housing market indicators, such as the S&P/Case-Shiller Home Price Index and the Pending Home Sales Index, the HMI is unique in its focus on builder sentiment rather than sales prices or sales volumes.
Related Terms
- S&P/Case-Shiller Home Price Index: A measure of the change in the value of residential real estate.
- Pending Home Sales Index: An index of home sales that are under contract but not yet closed.
FAQs
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References
- National Association of Home Builders. “Housing Market Index (HMI).” NAHB website
- Wells Fargo. “Housing Market Index.” Wells Fargo website
- Federal Reserve Economic Data. “NAHB/Wells Fargo Housing Market Index.” FRED
Summary
The NAHB/Wells Fargo Housing Market Index is an essential tool for understanding the sentiment and expectations of home builders in the U.S. single-family housing market. By reflecting builders’ views on current and future home sales and potential buyer traffic, the HMI serves as a critical economic indicator used by a wide range of stakeholders.
