Improvement in Housing Market?

September 19, 2012 | David Hernandez, CFA, Associate Director

This Chart of the Week examines home builders’ expectations of the newly built single family home market measured by the NAHB/Wells Fargo Housing Market Index (“HMI”). The HMI is based on a monthly survey conducted by the National Association of Home Builders. The index measures home builders’ perceptions of current sales, sales expectations for the next six months, and traffic of prospective buyers for newly built single family homes. An index value over 50 signifies more builders consider sales conditions good rather than poor.

While still below 50, the HMI has increased over the last five months and is now at a level of 40, which was last seen in June 2006. The improvement in builders’ confidence along with a gradual upward trend in existing home sales and stabilization of home prices are signs of modest improvement in the housing market after a historic collapse from the 2008 financial crisis. Historically low mortgage rates and attractive price opportunities have helped to stabilize the current housing market. However, a number of challenges remain, including high unemployment, a large number of looming foreclosures, strict credit standards, higher required down payments, and current underwater mortgages for would be buyers.