Housing Market Index

NAHB/Wells Fargo Housing Market Index (HMI): What it Is and Why It Matters

Key takeaways
* The HMI is a monthly sentiment index of U.S. single‑family home builders conducted by the National Association of Home Builders (NAHB) in partnership with Wells Fargo.
* It aggregates builders’ ratings of current sales, six‑month sales expectations, and prospective‑buyer traffic into a single index that ranges from 0 to 100.
* Readings above 50 indicate a net favorable view; the HMI closely correlates with single‑family housing starts and is used as a short‑term indicator of construction activity.

What the HMI measures
The HMI gauges builder sentiment about the single‑family housing market. Participating NAHB members rate:
* Current single‑family sales (good / fair / poor)
* Sales expectations over the next six months (good / fair / poor)
* Traffic of prospective buyers (high/very high / average / low/very low)

How the HMI is calculated
* Each of the three components is converted into a diffusion index:
* Present and future sales: (good − poor + 100) / 2
* Buyer traffic: (high/very high − low/very low + 100) / 2
* Component indices are seasonally adjusted.
* A weighted average produces the HMI using weights chosen to maximize historical correlation with single‑family housing starts:
* Present sales: 0.5920
* Future sales (6 months): 0.1358
* Traffic: 0.2722
* The resulting index ranges from 0 (very negative) to 100 (very positive). Values above 50 signal a generally favorable market outlook.

Why the HMI matters
* The HMI is a timely gauge of builder sentiment that tends to move ahead of changes in single‑family housing starts, a key economic and construction activity indicator.
* Because new home construction has broad economic effects (materials, furnishings, financing, employment), HMI shifts can signal broader trends in the housing sector and near‑term economic activity.
* The index is widely followed by economists, policymakers, lenders, and market participants as a leading indicator for residential construction.

Release timing and historical notes
* The HMI is released monthly, typically at 10:00 a.m. ET on the 11th business day of the month (often the day before the Census Bureau’s housing starts report).
* Historical extremes: the HMI fell to a record low of 8 in January 2009 and reached a record high of 90 in November 2020.

Sources
* National Association of Home Builders (NAHB) — HMI methodology and historical data
* U.S. Census Bureau — housing starts and permits data