The NAHB/Wells Fargo housing market index is up 5 points to 50 in May after an unrevised 45 in April. This is the highest reading since 55 in July 2022. The May index level is above the consensus of 45 in an Econoday survey. Homebuilders are more optimistic if cautiously so due to a lack of inventory in existing homes that is driving buyers into the market for new construction.

The index component for new single-family home sales is up 5 points to 56 in May, the highest since 57 in August 2022. The index for expected single-family sales is up 7 points to 57, its highest since 61 in June 2022. The index for buyer traffic is up 2 points to 33, the highest since 37 in July 2022.

NAHB Chair Alicia Huey said,"New home construction is taking on an increased role in the marketplace because many home owners with loans well below current mortgage rates are electing to stay put, and this is keeping the supply of existing homes at a very low level."

NAHB Chief Economist Robert Dietz said,"Lack of existing inventory continues to drive buyers to new construction." He added,"In March, 33 percent of homes listed for sale were new homes in various stages of construction. That share from 2000-2019 was a 12.7 percent average. With limited available housing inventory, new construction will continue to be a significant part of prospective buyers' search in the quarters ahead."

The housing market index has been stabilizing following last year's steep declines. After April's 1-point gain to 45, May's consensus is no change at 45.

The housing market index is a monthly composite that tracks home builder assessments of present and future sales as well as buyer traffic. The index is a weighted average of separate diffusion indexes: present sales of new homes, sales of new homes expected in the next six months, and traffic of prospective buyers of new homes.

This report provides a gauge of not only the demand for housing, but the economic momentum. People have to be feeling pretty comfortable and confident in their own financial position to buy a house. Furthermore, this narrow piece of data has a powerful multiplier effect through the economy, and therefore across the markets and your investments. By tracking economic data such as the housing market index, investors can gain specific investment ideas as well as broad guidance for managing a portfolio. Whether the housing market index reflects new home sales or home resales, once a home is sold, it generates revenues for the realtor and the builder. It brings a myriad of consumption opportunities for the buyer. Refrigerators, washers, dryers and furniture are just a few items home buyers might purchase. The economic"ripple effect" can be substantial especially when you think a hundred thousand new households around the country are doing this every month. Since the economic backdrop is the most pervasive influence on financial markets, home sales have a direct bearing on stocks, bonds and commodities. In a more specific sense, trends in the existing home sales data carry valuable clues for the stocks of home builders, mortgage lenders and home furnishings companies.