NAHB/Wells Fargo Housing Market Index (HMI)
The NAHB/Wells Fargo Housing Market Index (HMI) relies on a monthly survey of NAHB members aimed at assessing the state of the single-family housing market. The survey prompts participants to evaluate current market conditions for the sale of new homes, predict conditions for the next six months, and assess the level of prospective buyer traffic for new homes.
According to the NAHB, the NAHB/Wells Fargo HMI is a weighted average of three separate component indices: Present Single-Family Sales, Single-Family Sales for the Next Six Months, and Traffic of Prospective Buyers. Each month, a panel of builders rates the first two on a scale of “good,” “fair” or “poor” and the last on a scale of “high to very high,” “average” or “low to very low”. An index is calculated for each series by applying the formula “(good – poor + 100)/2” or, for Traffic, “(high/very high – low/very low + 100)/2”.
Each resulting index is first seasonally adjusted, then weighted to produce the HMI. The weights are .5920 for Present Sales, .1358 for Sales for the Next Six Months, and .2722 for Traffic. The weights were chosen to maximize the correlation with starts through the following six months.
