The National Association of Home Builders (NAHB) reported builder sentiment inched higher to 68 in October, slightly beating the 67 forecast. The Housing Market Index (HMI) has been flat at solid levels, but this is the first rise in the index since July.
New home sales have also been flat this year, though existing home sales have declined. The report this morning could signal a strengthening in residential construction investment.
The HMI is a weighted average of separate diffusion indices for these three key single-family series. The first two series are rated on a scale of Good, Fair and Poor and the last is rated on a scale of High/Very High, Average, and Low/Very Low. A diffusion index is calculated for each series by applying the formula “(Good-Poor+100)/2” to the present and future sales series and “(High/Very High – Low/Very Low + 100)/2” to the traffic series. Each resulting index is then seasonally adjusted and weighted to produce the HMI.
Based on this calculation, the HMI can range between 0 and 100.