What is it?
- NAHB/Wells Fargo Housing Market Index (HMI) is based on a monthly survey of home builders.
- The HMI is based on a survey that has been mailed to a panel of NAHB builder members every month since January 1985.
- Builders, with their experience and close contact with local market conditions, provide timely information about current housing market conditions as well as how home sales are likely to behave in the future
- They are asked to rate current sales of single-family homes and sales expectations for the next six months and to rate the traffic of prospective buyers. Scores for responses to each component are used to calculate a seasonally adjusted overall index, where a number over 50 indicates more builders view sales conditions as good than poor.
- About 400 responses are obtained each month.
How it is Calculated?
The NAHB/Wells Fargo HMI is a weighted average of three separate component indices:
- Present Single-Family Sales(scale of “good,” “fair” or “poor”)
- Single-Family Sales for the Next Six Months(scale of “good,” “fair” or “poor”)
- The traffic of Prospective Buyers. (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 HMI can range between 0 and 100.
Why it is important?
- The index measures builder confidence in the market for newly-built single-family homes.
- As a gauge of home builder sentiment, the HMI provides valuable clues on the near-term direction of housing starts.
Based on the result, we can tell that the Homebuilder's Stock like Lennar(LEN), DR Horton(DHI), PulteGroup(PHI), and MDC Holding(MDC), etc will have some movement, as it will show the future activities of these companies in the form of new build initiatives.