What Is Housing Market Index?
The Housing Market Index (HMI) is a monthly survey-based gauge of home builder sentiment toward the U.S. single-family housing market. As a key economic indicator, the HMI offers insight into the overall health of the residential construction sector and broader market sentiment within the economy. The index is compiled and released by the National Association of Home Builders (NAHB) in partnership with Wells Fargo.
The Housing Market Index primarily reflects builders' perceptions of current sales conditions for new single-family homes, sales expectations for the next six months, and the traffic of prospective buyers. It serves as an important barometer for industry professionals, economists, and investors seeking to understand housing trends.
History and Origin
The National Association of Home Builders began publishing the Housing Market Index in January 1985.13 This initiative emerged from a need for timely and direct feedback from the home-building community, providing a forward-looking perspective on the market. Unlike lagging indicators that report on past activity, the HMI aims to capture the prevailing optimism or pessimism among builders. Its inception provided a valuable tool for stakeholders to assess the dynamic real estate market.
Key Takeaways
- The Housing Market Index (HMI) measures the confidence of single-family home builders.
- It is compiled monthly by the National Association of Home Builders (NAHB).
- The HMI is derived from builders' ratings of current sales, future sales expectations, and buyer traffic.
- A reading above 50 indicates that more builders view sales conditions as "good" than "poor," signaling a favorable market outlook.
- The index serves as an economic indicator, providing insights into trends in residential construction, economic growth, and consumer confidence.
Formula and Calculation
The Housing Market Index is calculated as a weighted average of three component indices: present sales, expected sales for the next six months, and traffic of prospective buyers. Builders respond to questions about these conditions, rating them as "good," "fair," or "poor" for sales, and "high/very high," "average," or "low/very low" for traffic.
The formula for each component sub-index is:
The overall HMI is then a weighted average of these three seasonally adjusted sub-indices. For example, present sales carry a weight of 0.5920, expected sales 0.1358, and buyer traffic 0.2722.12
Interpreting the Housing Market Index
The Housing Market Index provides a snapshot of builder sentiment on a scale from 0 to 100. A score above 50 signifies that a greater proportion of builders view conditions as favorable, indicating a positive outlook for the single-family homes market. Conversely, a reading below 50 suggests that more builders perceive conditions as poor, reflecting a pessimistic view. For instance, in July 2025, the HMI stood at 33, indicating that more builders felt conditions were poor rather than good.11
Market analysts and investors often use the HMI to gauge potential shifts in the real estate market. A rising index may suggest an increase in future residential construction activity, while a declining index could signal a slowdown. This interpretation helps inform decisions related to investments and economic forecasting.
Hypothetical Example
Consider a hypothetical scenario in which the Housing Market Index rises from 45 to 55 over two consecutive months. This upward movement would suggest a significant improvement in builder confidence. For example, if the "current sales conditions" sub-index increased from 40 to 52 and "sales expectations for the next six months" moved from 50 to 60, it indicates that more builders are experiencing better sales and anticipate continued strength in the coming months.
This positive trend in the HMI might lead economists to predict an uptick in new housing starts and a potential boost to local economies. Conversely, if the HMI were to drop from 60 to 48, it would signal a decline in optimism among builders, perhaps due to rising mortgage rates or concerns about housing affordability, potentially foreshadowing a contraction in residential construction.
Practical Applications
The Housing Market Index is a valuable tool for various stakeholders in the financial and housing sectors.
- Investment Analysis: Investors and analysts closely monitor the HMI to understand trends in the housing market, which can influence investment decisions in home builder stocks, construction materials companies, and real estate investment trusts (REITs). A robust HMI often correlates with positive economic growth.
- Economic Forecasting: The index provides an early look into potential changes in the broader economy. Strong builder sentiment can precede increased employment in the construction sector and higher consumer spending on home-related goods and services. The U.S. Census Bureau also publishes data on new residential construction, which offers a complementary view of actual activity in the housing market.10
- Policymaking: Government bodies and policymakers, including those at the Federal Reserve, consider the HMI when evaluating the health of the housing sector and its contribution to national Gross Domestic Product (GDP). Understanding builder confidence can help inform decisions related to interest rates and other housing-related policies. The Federal Reserve Bank of St. Louis, for example, compiles various housing-related data, including median sales prices, which further contextualize the market.9
- Business Strategy: Home builders themselves use the Housing Market Index to guide their operational and strategic planning, such as adjusting new construction volumes, pricing strategies, and land acquisition efforts.
Limitations and Criticisms
While the Housing Market Index is a widely cited indicator, it has several limitations.
Firstly, the HMI is based on sentiment, which can be subjective and may not always align perfectly with actual market conditions. Critics point out that since the survey is conducted among home builders, their responses could be influenced by a natural inclination towards optimism or by issues specific to their industry, such as rising building material costs or labor shortages, rather than broader market forces.7, 8
Secondly, the HMI primarily focuses on the single-family home market and does not directly reflect conditions in the rental market or multi-family housing, providing only a partial view of the overall real estate market.6 It also does not typically include information on housing affordability, which is a crucial factor for many potential homebuyers.5
Thirdly, as a national index, the HMI may not accurately capture regional or local differences in housing market dynamics, which can vary significantly across different parts of the country.4 Furthermore, some analysts suggest the HMI can be a lagging indicator, meaning it reflects past or current trends rather than serving as a reliable tool for long-term forecasting.2, 3 It may not fully account for the complex interplay of macroeconomic factors like inflation or fluctuating interest rates that significantly impact housing demand and supply and demand dynamics.
Housing Market Index vs. Housing Starts
The Housing Market Index and housing starts are both crucial indicators for the residential construction sector, but they measure different aspects. The Housing Market Index (HMI) is a measure of market sentiment, reflecting the confidence of home builders regarding current and future sales, and buyer traffic. It is a forward-looking indicator based on a survey of industry professionals.
In contrast, housing starts represent the actual beginning of construction on new residential buildings. These are hard data points compiled by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development, tracking how many new homes builders have started constructing in a given period. While the HMI offers insight into builder optimism (or pessimism), housing starts reflect the tangible output and activity in the new housing market. A high HMI often precedes an increase in housing starts, but discrepancies can occur due to various factors like supply chain disruptions or difficulty qualifying buyers for mortgages.
FAQs
What does a reading of 50 on the Housing Market Index mean?
A reading of 50 on the Housing Market Index signifies a neutral outlook. It means that an equal number of home builders view current or future sales conditions as "good" and "poor." A reading above 50 suggests positive sentiment, while below 50 indicates negative sentiment.
Is the Housing Market Index a leading or lagging indicator?
The Housing Market Index is generally considered a leading indicator for the single-family housing market, as it reflects builder expectations for the near future. However, some criticisms suggest it can also have characteristics of a lagging indicator, reflecting current market conditions rather than consistently predicting long-term shifts. Its value for forecasting depends on the specific market context and other economic indicators.
How often is the Housing Market Index released?
The Housing Market Index is released monthly by the National Association of Home Builders (NAHB), typically around the middle of each month.1
What factors can influence the Housing Market Index?
Many factors can influence the Housing Market Index, including prevailing interest rates and mortgage rates, overall economic growth, consumer confidence levels, the cost and availability of labor and building materials, and local or national housing inventory. Significant shifts in any of these areas can impact builder sentiment.
How does the Housing Market Index relate to housing affordability?
While the Housing Market Index does not directly measure housing affordability, it can indirectly reflect it. For example, if rising home prices or high interest rates lead to decreased buyer traffic, builders may report lower confidence, causing the HMI to fall. This suggests that affordability challenges can dampen builder sentiment and impact market activity.