The NAHB/Wells Fargo housing market index falls to 45 in May after 51 in April. The reading is below the consensus of 51 in the Econoday survey of forecasters. The index reflects homebuilders' adjustment to the reality that mortgage interest rates are unlikely to come down substantially in the near future as the Federal Reserve is on hold for possible rate cuts indefinitely while the inflation fight goes on.

The Freddie Mac average monthly rate for a 30-year fixed rate mortgage is at 7.09 percent for May to-date, slightly above the 7.04 percent in April and 6.82 percent in March. Although lean stocks of existing homes will continue to support homebuilding, there are fewer potential homebuyers in the market due to affordability issues while rates are higher along with prices.

The detail indexes show that homebuilders are less optimistic about both current and future conditions. The index for present sales is down 6 points to 51 in May and the expected sales index is down 9 points to 51. The buyer traffic index is 4 points lower to 30 in May. Essentially, the improvements in perceptions of homebuilders in the first quarter 2024 when there was a respite in mortgage rates below the 7 percent-mark are gone.

Forecasters expect the housing market index to hold steady at 51 in May. April's report indicated narrowly positive sentiment among builders.

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.