The NAHB/Wells Fargo housing market index is down 5 points to 45 in September after an unrevised 50 in August. It is down for the second month in a row after a near-term peak of 56 in July, and the lowest since 45 in April. The September reading is below the consensus of 50 in the Econoday survey of forecasters. All three components of the index are down in September. Homebuilders are clearly being pinched by recent increases in mortgage rates as potential homebuyers face affordability challenges.

NAHB Chief Economistic Robert Dietz said,"High mortgage rates are clearly taking a toll on builder confidence and consumer demand, as a growing number of buyers are electing to defer a home purchase until long-term rates move lower."

NAHB Chair Alicia Huey said,"The two-month decline in builder sentiment coincides with when mortgage rates jumped above 7% and significantly eroded buyer purchasing power." She continued,"And on the supply-side front, builders continue to grapple with shortages of construction workers, buildable lots and distribution transformers, which is further adding to housing affordability woes. Insurance cost and availability is also a growing concern for the housing sector."

The index for current sales of single-family homes is down 6 points to 51 in September, its lowest since 51 in April. The index for expected sales of single-family homes six months from now is down 6 points to 49 in September, its lowest since 47 in March. The index for buyer traffic is down 5 points to 30 in September, its lowest since 28 in February.

Lack of inventory in existing homes continues to drive sales to new construction, even if the pace of sales is down. The report noted,"A special question in the September HMI survey revealed that 42% of new single-family home buyers were first-time buyers on a year-to-date basis in 2023. This is significantly higher than the 27% reading from a more normalized market in 2018."

More homebuilders are offering discounts to homebuyers. In September 32 percent of homebuilders discounted prices versus 25 percent in August. The average size of the price is 6 percent in September. Also in September, 59 percent of homebuilders offered some sort of incentive,"more than any month since April 2023," the report said.

Forecasters expect the housing market index to hold unchanged in September after falling an unexpected 6 points in August to a very subdued 50.

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.