The NAHB/Wells Fargo housing market index dips 2 points to 39 in August after a downward revision to 41 in July. The August reading is below the consensus of 42 in the Econoday survey of forecasters. The below expectations reading suggests that between improved supply of existing housing stock and anticipation of lower interest rates ahead, homebuilders have turned more cautious in August before starting fresh construction projects.

The Freddie Mac rate for a 30-year fixed rate mortgage has reached a recent low of 6.47 percent as of August 8 with rates broadly trending lower since 7.22 percent in the May 2 week. Potential homebuyers could be waiting to see if rates will go lower still and/or if there is room for price negotiation in a less competitive market.

The index for present sales conditions is down 2 points in August to 44 and the index for buyer traffic is also 2 points lower to 25. However, the index for expected sales is up a point to 49 in August, rising for a second month in a row.

NAHB Chair Carl Harris said,"Challenging housing affordability conditions remain the top concern for prospective home buyers in the current reading of the HMI, as both present sales and traffic readings showed weakness."

NAHB Chief Economist Robert Dietz notes"With current inflation data pointing to interest rate cuts from the Federal Reserve and mortgage rates down markedly in the second week of August, buyer interest and builder sentiment should improve in the months ahead."

In August, 33 percent of builders offered a price cut, up from 31 percent in July and the highest since 36 percent in November-December 2023. However, the size of the price cut remains at 6 percent where it has been for 14 straight months. The number of builders offering incentives is up to 64 percent in August from 61 percent July and the highest since April 2019.

The housing market index in July edged a point lower to 42 though expectations for future sales, helped by hopes for a Federal Reserve rate cut, did move higher. Nevertheless, August's consensus is no change at 42.

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.