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Why American Builders Remain Confident about the Housing Industry

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May. 29 2018, Updated 9:55 a.m. ET

About the NAHB housing market index

The National Association of Home Builders (or NAHB) is an association of 700 state and local associations of homebuilders (REM), real estate sales and marketing professionals, and remodelers. The NAHB conducts a monthly survey of its members, and based on this survey, the association publishes a report that includes the housing market index (or HMI).

The survey asks respondents to rate the current conditions and expected conditions in the next six months as “good,” “fair,” or “poor” and mostly relates to the single-family housing (ITB) market. The monthly report also contains data about the traffic of prospective buyers as “high to very high,” “average,” or “low to very low” for new homes.

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NAHB HMI reading for May

The HMI was reported to have increased by two points to 70 in May compared to the downwardly revised April reading of 68. The index recorded its highest level of 74 in December 2017 and dropped below 70 in only one month in 2018. Such a high level for this reading reflects builder confidence that the housing industry (ITB) could expand further in the future. The HMI is a diffusion index whose value ranges between 0 and 100 and is a weighted average of the results of three different surveys conducted by the NAHB.

The component tracking current sales conditions increased by two points to 76. The components measuring buyer traffic and sales expectations for the next six months remained unchanged at 76 and 55, respectively.

The outlook from the NAHB

NAHB chair Randy Noel said that builders’ (PKB) confidence has increased on growing consumer demand for single-family homes, but rising input costs, especially due to the record-high price of lumber, are hurting homebuilders’ margins and could lead to increased house prices.

The chief economist of the NAHB, Robert Dietz, felt that housing sector fundamentals remained in place thanks to strong employment gains, tight inventory, and demographic tailwinds and that the sector (REZ) should improve at a steady pace in the months ahead. In the next part of this series, we’ll analyze why housing starts were down in April.

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