As the S&P 500 and Dow Jones are breaching all-time highs, a survey of builder confidence took a step back. The National Association of Home Builders (NAHB) said its Housing Market Index (HMI), which has tracked responses from new-home builder surveys for the past 30 years, took a step back from 60 to 59 in July. For context, the index has hovered between 58 and 61 since last December and reached an all-time of 65 last October. Though the change isn’t drastic, it’s worth examining why any measure of economic confidence would wane when markets are surging higher.
How the Index Works The index is composed of three predictions:
- Single-family home sales for the next 6 months
- Overall sales for the next 6 months
- Prospective buyer traffic for the next 6 months
These numbers are then combined for a seasonally adjusted score. Of the three predictions, the index measuring overall sales predictions fell three points in July, while the other two indices fell just one point.
Why the Pullback? Apart from the usual regulatory constraints putting a cap on builder optimism, NAHB Chief Economist Robert Dietz also noted severe labor shortages and the forecast of slow, steady growth. That being said, mortgage rates are near all-time lows and job creation is improving. Going forward, property owners and real estate investors would be wise to keep an eye on the HMI and take note if it leaves the six-month range of 58 to 61.
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