The NAHB/Wells Fargo housing market index dips 1 point to 42 in July after an unrevised 43 in June. The July reading is just below the consensus of 43 in the Econoday survey of forecasters. At the headline, the index indicates that homebuilders' confidence is slightly weaker in July and the lowest since 37 in December 2023. However, the survey may not fully capture the improved chance of a rate cut in September and easing in financial market conditions in anticipation of the first change in the fed funds target rate since July 2023.

The Freddie Mac rate for a 30-year fixed rate mortgage remains near the 7-percent mark in recent weeks, but hopes for a rate cut are better after Fed Chair Jerome Powell's recent semiannual monetary policy testimony. It appears that rates are moderating slightly. In the July 11 week, the rate is down 6 basis points to 6.89 percent and the 15-year fixed rate is down 8 basis points to 6.17 percent. If the trend lower continues, it will likely help boost homebuying.

The index for present sales conditions is down a point to 47 in July and the index for buyer traffic is also a point lower to 27. However, the index for expected sales is up a point to 48 in July, the first increase in four months.

NAHB Chair Carl Harris said,"While buyers appear to be waiting for lower interest rates, the six-month sales expectation for builders moved higher, indicating that builders expect mortgage rates to edge lower later this year as inflation data are showing signs of easing."

NAHB Chief Economist Robert Dietz notes"Though inflation is still above the Federal Reserve's target of 2 percent, it appears to be back on a cooling trend. NAHB is forecasting Fed rate reductions to begin at the end of this year, and this action will lower interest rates for home buyers, builders and developers." He continued,"And while home inventory is increasing, total market inventory remains lean at a 4.4 months' supply, indicating a long-run need for more home construction."

In July, 31 percent of builders offered a price cut, up from 29 percent in June and the highest since 31 percent in January. However, the size of the price cut remains at 6 percent where it has been for 13 straight months. The number of builders offering incentives remains at 61 percent in July from June and the highest since 62 percent in January.

The housing market index in June fell 2 points to 43, once again reflecting the negative impact of high financing rates. July's consensus is no change at 43.

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.