NAHB Housing Market Index: Builder Confidence Rises for Third Straight Month
The National Association of Home Builders (NAHB) Housing Market Index (HMI) is a gauge of builder opinion on the relative level of current and future single-family home sales. The data is collected from a monthly survey of about 900 home builders asking respondents to, "rate market conditions for the sale of new homes at the present time and in the next six months as well as the traffic of prospective buyers of new homes." It is a diffusion index, which means that a reading above 50 indicates a favorable outlook on home sales; below 50 indicates a negative outlook.
The latest index reading is at 48, up 4 points from January and above the forecast of 46. Builder confidence rose for a third straight month to its highest level since August as a result of moderating mortgage rates, possible Fed rate cuts, and a lack of exiting inventory.
Here's an excerpt from the press release:
“Buyer traffic is improving as even small declines in interest rates will produce a disproportionate positive response among likely home purchasers,” said NAHB Chairman Alicia Huey, a custom home builder and developer from Birmingham, Ala. “And while mortgage rates still remain too high for many prospective buyers, we anticipate that due to pent-up demand, many more buyers will enter the marketplace if mortgage rates continue to decline this year.”
“With future expectations of Fed rate cuts in the latter half of 2024, NAHB is forecasting that single-family starts will rise about 5% this year,” said NAHB Chief Economist Robert Dietz. “But as builders break ground on more homes, lot availability is expected to be a growing concern, along with persistent labor shortages. And as a further reminder that the recovery will be bumpy as buyers remain sensitive to interest rate and construction cost changes, the 10-year Treasury rate is up more than 40 basis points since the beginning of the year.”
Here is the historical series, which dates from 1985.
Components of the the NAHB Housing Market Index
The NAHB Housing Market Index is calculated based off of three components: current sales, expected sales in the next 6 months, and traffic of prospective buyers. All three components increased for a third straight month. In February, the current sales component rose to 52, the expected sales component to 60, and the traffic component to 33.
Housing Market Index: Regional Breakdown
The chart below gives a regional breakdown of the NAHB HMI in four regions of the country: Northeast, Midwest, South, and West. All four regions increased from January.