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The Housing Market Index Rises to Levels Last Seen in 2005

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The housing market index

The housing market index (or HMI), released monthly by the National Association of Home Builders (or NAHB) in association with Wells Fargo (WFC), is a weighted average of separate diffusion indexes. These include the present sale of new homes, the sale of new homes expected in the next six months, and the prospective buyers’ traffic in the new homes sector.

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HMI at a ten-year high

As per the August release, the HMI for August rose to 61, a figure last seen in November 2005. The housing market has certainly come a long way from its recessionary abyss of 2008–09. The future sales component of the index came in at a very strong 70, while the current sales index stood at 66. In the United States, homebuilding activity generally takes a breather during the winter months, as the severe weather obstructs new construction. However, as the weather warms up, economic and housing activity picks up, which also reflects in the upsurge in the HMI after March this year.

Market impact

The report had set the stage well for Tuesday’s housing starts report, which also pleased real estate investors, as we discussed in Part 1. Homebuilding companies D.R. Horton. (DHI), Lennar (LEN), PulteGroup (PHM), and Toll Brothers (TOL) further gained 1.44%, 3.06%, 2.48%, and 2.77%, respectively, at the close of trade on August 18. Popular real estate ETFs like the Vanguard REIT ETF (VNQ), the iShares Dow Jones US Real Estate Index Fund (IYR), and the SPDR Dow Jones REIT ETF (RWR) reflect the performance of the housing market in their returns. VNQ was up 0.27%, IYR gained 0.08%, and RWR advanced 0.24% on August 18.

Now that we see the housing sector is signaling increasing strength, let’s now move on to gauge the state of the manufacturing sector in the United States.

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