The National Association of Home Builders (NAHB) and Wells Fargo today released their monthly Housing Market Index (HMI) results that demonstrate that builder confidence in the market went from 24 points to 29. The four-point increase represents the fifth month in a row that the HMI has increased. This is the highest level the index has reached since 2007.
Despite the increase, home builder confidence is low by historical measures. A score of 50 or above means that more builders see the market as good rather than poor. Nevertheless, the index has doubled since September 2011, when it was as low as 14. It hit its all-time low of 8 in January 2009. So this month’s score is an indicator that builders see the housing market’s growth as sustainable.
What the Index Measures: For more than 20 years, the HMI has been generated by a monthly survey that the NAHB conducts by researching home builders’ confidence in the housing market. Builders are asked to evaluate current single-family home sales and upcoming sales for the next six months as “good,” “fair,” or “poor.” The builders also rate the number of prospective buyers as “high,” “average,” or “low.” The scores are compiled to arrive at the HMI figure.
The HMI consists of three components, which all increased for the February report. The rate of prospective buyers increased from 21 to 22 while the measure of sales expectations for the next six months went from 29 to 34. Current sales increased from 25 to 30. Home builders in the western U.S. had the most positive views, with an index of 44, the highest since 2006. Positive sentiment declined in the Northeast and South, but rose to a rate of 30 in the Midwest.
Why Consumers Care: The house building sector of the economy was one of the hardest hit by the recession and has been one of the slowest to recover; however, its health can be an indicator of the state of the economy as a whole. Since the HMI measures builders’ sentiments about the housing market, it is a good measure of the present state of the real estate market as well as a predictor of the future.
Home sales are an important sector of the economy and a gauge of consumers’ confidence – since only economically secure people decide to purchase homes. When consumers purchase homes, they generate income for realtors and sellers – and usually acquire goods and services, such as large appliances and cleaning services, which have a ripple effect on the economy. Investors also use such indices as a means of making investment decisions and the information often has a direct impact on the prices of stocks, bonds, and commodities.