NAHB Housing Market Index: Mortgage Rates Continue to Damper Builder Confidence

Builder confidence fell further in July as high mortgage rates and elevated construction financing continue to slow down the market. The National Association of Home Builders (NAHB) Housing Market Index (HMI) dropped to 42 this month, its lowest level of the year. The latest reading came was below the forecast of 43.

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.

Here's an excerpt from the press release:

“While buyers appear to be waiting for lower interest rates, the six-month sales expectation for builders moved higher, indicating that builders expect mortgage rates to edge lower later this year as inflation data are showing signs of easing,” said NAHB Chairman Carl Harris, a custom home builder from Wichita, Kan.

“Though inflation is still above the Federal Reserve’s target of 2%, it appears to be back on a cooling trend. NAHB is forecasting Fed rate reductions to begin at the end of this year, and this action will lower interest rates for home buyers, builders and developers,” said NAHB Chief Economist Robert Dietz. “And while home inventory is increasing, total market inventory remains lean at a 4.4 months’ supply, indicating a long-run need for more home construction.”

Here is the historical series, which dates from 1985.

NAHB Housing Market Index

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.

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.