Nearly all financial indicators took a hit last month
as unemployment measures shot higher, businesses shut down, and consumers and
their families self-quarantined. Probably none of those measures suffered a
bigger bloodbath than the Housing Market Index (HMI) sponsored by the National
Association of Home Builders (NAHB) and Wells Fargo.
The index, which measures NAHB’s home builder members
confidence in the market for newly constructed homes, typically moves 1 or 2
points higher or lower each month. In April it plunged 42 points, the largest
monthly change in its more than 30-year history, ending up at a reading of 30.
This month it clawed back some of those losses.
The index rose 7 points, a signal according to NAHB “that
the housing market is showing signs of stabilizing and gradually moving forward
in the wake of the COVID-19 pandemic.” Analysts polled by Econoday unanimously expected
some recovery; the consensus was a 33 reading, with a range from 32 to 40.
“The fact that most states classified housing as an essential business
during this crisis helped to keep many residential construction workers on the
job, and this is reflected in our latest builder survey,” said NAHB Chairman
Dean Mon. “At the same time, builders are showing flexibility in this new
business environment by making sure buyers have the knowledge and access to the
homes they are seeking through innovative measures such as social media,
virtual tours and online closings.”
“Low interest rates are helping to sustain demand,” said NAHB Chief
Economist Robert Dietz. “As many states and localities across the nation lift
stay-at-home orders and more furloughed workers return to their jobs, we expect
this demand will strengthen. Other indicators that suggest a housing rebound
include mortgage application data that has posted four weeks of gains and signs
that buyer traffic has improved in housing markets in recent weeks. However,
high unemployment and supply-side challenges including builder loan access and
building material availability are near-term limiting factors.”
The index is derived from a survey that NAHB has been conducting for 30
years in which builders are asked to quantify their perceptions of current
single-family home sales and their expectation for those sales over the next
six months as “good,” “fair” or “poor.” The survey also asks builders to rate
traffic of prospective buyers as “high to very high,” “average” or “low to very
low.” Scores for each component are then used to calculate a seasonally
adjusted index where any number over 50 indicates that more builders view
conditions as good than poor.
All three of the HMI components increased in May. The HMI index gauging
current sales conditions was up 6 points to 42, the six-month horizon component
jumped 10 points to 46. The measure charting traffic of prospective buyers
recovered 8 points, rising to 21.
Looking at the monthly average regional HMI scores, the Midwest increased
seven point to 32, the South rose eight points to 42 and West posted a 12-point
gain to 44. The Northeast fell two points to 17.