Key takeaways
– The NAHB/Wells Fargo Housing Market Index (HMI) is a monthly sentiment survey of U.S. single‑family home builders produced by the National Association of Home Builders (NAHB) in partnership with Wells Fargo.
– The HMI is a diffusion index that ranges 0–100; readings above 50 indicate more builders view conditions as “good” than “poor.”
– The HMI combines three components (current sales, six‑month outlook, and buyer traffic) with fixed weights and is widely used as a short‑lead indicator for single‑family housing starts.
– HMI is useful for investors, builders, lenders, policymakers and analysts but has limitations: it measures sentiment (not actual starts), is sample‑based, and can diverge from physical construction data for periods.
What the HMI measures
– Survey population: NAHB member builders and remodelers (NAHB members account for a large share of U.S. new home construction).
– Scope: U.S. single‑family home market (national index plus regional indices).
– Questions: Each month participating builders rate (a) current single‑family sales (good/fair/poor), (b) expected single‑family sales over the next six months (good/fair/poor), and (c) traffic of prospective buyers (high/very high, average, low/very low).
How the HMI is calculated (method and formulas)
1. Create a diffusion index for each component:
– Present sales and future sales: diffusion index = (percent reporting “good” − percent reporting “poor” + 100) / 2
– Buyer traffic: diffusion index = (percent reporting “high/very high” − percent reporting “low/very low” + 100) / 2
2. Seasonally adjust each component.
3. Combine using fixed weights:
– Present sales: weight = 0.5920
– Future sales (6‑month outlook): weight = 0.1358
– Prospective buyer traffic: weight = 0.2722
4. The weighted sum produces the HMI, which ranges from 0 to 100. Readings >50 indicate net positive sentiment.
Example (illustrative)
– Suppose a survey yields: 40% good / 40% fair / 20% poor for present sales; 30% good / 50% fair / 20% poor for future sales; and 20% high/very high / 60% average / 20% low/very low for traffic.
– Present sales index = (40 − 20 + 100) / 2 = 60
– Future sales index = (30 − 20 + 100) / 2 = 55
– Traffic index = (20 − 20 + 100) / 2 = 50
– HMI = 0.5920×60 + 0.1358×55 + 0.2722×50 ≈ 58.5
– Interpretation: builders’ sentiment is moderately positive (above 50).
Historical context and interpretation
– Threshold: HMI > 50 generally signals more builders view conditions as good than poor.
– Historical extremes: the index hit a record low in the housing crash era (January 2009) and reached historically high levels in late 2020; nevertheless, HMI can lead or lag actual starts in different cycles.
– Timing: NAHB typically releases the HMI at 10:00 a.m. ET around the 11th business day of each month — usually one day before the Census Bureau’s monthly housing starts report.
Why analysts watch the HMI
– Leading indicator: HMI historically correlates closely with single‑family housing starts (starts typically follow builder sentiment with a short lead).
– Market signals: shifts in HMI can presage changes in demand for homebuilding materials, appliances, and durable goods, and they can influence homebuilder stocks and mortgage markets.
– Complementary measure: HMI adds sentiment context to hard data like housing starts, building permits, existing home sales, mortgage applications, and interest rates.
Limitations and warnings
– Sentiment vs. activity: HMI reflects builders’ views and expectations rather than actual construction activity; it can move on expectations, policy shifts, or short‑term supply constraints.
– Sample size and representation: the survey is sample‑based (historically a few hundred responses); while NAHB members cover a large share of new construction, responses are not a census of every builder.
– Regional variation: national HMI can mask important regional differences (NAHB publishes regional indexes).
– External drivers: HMI can be strongly influenced by mortgage rates, material costs, labor availability, land supply and local regulation — which may change rapidly.
– Legal and ethical note: housing market participants must comply with fair lending and anti‑discrimination laws (reporting avenues include the Consumer Financial Protection Bureau and the U.S. Department of Housing and Urban Development).
Practical steps — how to use the HMI (by audience)
For investors (stocks, REITs, suppliers)
– Step 1: Track monthly HMI releases and trends (momentum and changes in components).
– Step 2: Compare HMI trends with housing starts, building permits, mortgage rates and builder earnings.
– Step 3: Use HMI changes to adjust short‑term sector positioning (homebuilders, building materials, consumer durables). A rising HMI may signal higher demand for upstream suppliers; a falling HMI may warn of near‑term revenue pressure.
– Step 4: Incorporate HMI as a leading variable in simple forecasting models (e.g., regress housing starts on lagged HMI and mortgage rates).
For home builders and remodelers
– Step 1: Monitor national and regional HMI components (present sales, future sales, buyer traffic).
– Step 2: Use traffic and future sales indicators to adjust order books, staffing, subcontractor scheduling, and inventory purchases.
– Step 3: Compare local sales signals to national HMI to detect regional divergences requiring localized strategy.
For lenders and mortgage professionals
– Step 1: Use HMI and its traffic component as an early signal of changes in future loan origination volume.
– Step 2: Combine HMI with mortgage application volumes, interest rate trends, and credit availability to anticipate underwriting demand and credit risk.
For policymakers and analysts
– Step 1: Include HMI in broader housing condition dashboards along with starts, permits, prices and affordability metrics.
– Step 2: Use changes in the HMI to assess near‑term construction activity and the potential economic spillovers to employment and durable goods sectors.
For homebuyers
– Step 1: Treat HMI as a market sentiment indicator, not a timing tool for home prices.
– Step 2: Use HMI to gauge builder confidence and prospective supply trends — a sustained rise may indicate stronger new‑home availability, while a drop could suggest tighter new‑home production.
How to access the data and incorporate it in analysis
– Source releases: NAHB posts monthly HMI press releases and historical tables on its website.
– Time series: professional databases (Haver, Bloomberg), FRED (for related series), and NAHB’s historical tables provide downloadable series.
– Modeling tips: use seasonally adjusted HMI, test for appropriate lags (HMI typically leads single‑family starts by a few months), and combine with other indicators (permits, mortgage rates, existing‑home sales, inventory).
Further reading and primary sources
– National Association of Home Builders (NAHB) — NAHB/Wells Fargo Housing Market Index (HMI) and historical tables.
– NAHB / HousingEconomics analysis — charts and discussions linking HMI to single‑family housing starts.
– U.S. Census Bureau — monthly Housing Starts and Building Permits data.
– Investopedia — overview and interpretation of the HMI.
Selected sources
– NAHB. “NAHB/Wells Fargo Housing Market Index (HMI).”
– NAHB. “Table 2: NAHB/Wells Fargo National HMI – History.”
– HousingEconomics.com. “Examining the NAHB/Wells Fargo Housing Market Index (HMI).”
– U.S. Census Bureau. “Housing Starts.”
– Investopedia. “Housing Market Index (HMI).” (source material provided by user)
If you’d like, I can:
– Pull the latest HMI time series (national and regional) and plot it against single‑family housing starts; or
– Build a simple regression model showing how lagged HMI predicts future single‑family housing starts. Which would you prefer?