The NAHB/Wells Fargo housing market index is up 4 points to 48 in February, the highest since 50 in August 2023. The February reading is above the consensus of 46 in the Econoday survey of forecasters. The index is higher due to improvements in all components which reflect moderation in mortgage rates since December. Homebuilders anticipate that the dearth of homes available in the existing market will give new home construction further opportunities to capture sales, especially if mortgage rates decline.

NAHB Chief Economist Robert Dietz said,"With future expectations of Fed rate cuts in the latter half of 2024, NAHB is forecasting that single-family starts will rise about 5 percent this year." He continued,"But as builders break ground on more homes, lot availability is expected to be a growing concern, along with persistent labor shortages. And as a further reminder that the recovery will be bumpy as buyers remain sensitive to interest rate and construction cost changes, the 10-year Treasury rate is up more than 40 basis points since the beginning of the year."

The index of present sales of single-family homes is up 4 points to 52 in February, the highest since 57 in August 2023. The index for expected sales of single-family homes is up 3 points to 60 in February, the highest since 62 in June 2023. The buyer traffic index is up 4 points to 33 in February, the highest since 35 in August 2023. Taken together, the recent dip in mortgage rates has seen some pent-up demand exercised, is anticipated to bring out some buyers in the spring months, and has prompted potential homebuyers to start looking. The average Freddie Mac rate for a 30-year fixed rate mortgage is 6.64 percent for February to-date, the same as in January as a whole, but below 6.82 percent in December and 7.44 percent in November.

The market for new homes is sufficiently strong that homebuilders are scaling back on incentives to coax buyers into signing contracts, although it is still a significant share. In February, 59 percent of builders offered incentives compared to 62 percent in January. Among incentives, 25 percent of builders offered price cuts compared to 31 percent in January. The average size of a price cut is 6 percent where it has been for the past seven months.

Forecasters expect the housing market index to rise further in February to 46 after rebounding a substantial 7 points in January to 44.

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.