The NAHB/Wells Fargo housing market index up 1 point to 40 in April after an unrevised 39 in March. The April reading is above the consensus of 38 in the Econoday survey of forecasters. The rise is likely due to recent declines in mortgage rates that are now reversing direction. The index has been in contractionary territory for new home building since falling 6 points to 45 in May 2024.

The weekly average Freddie Mac rate for a 30-year fixed rate mortgage has fallen from the near-term high of 7.04 percent in the January 16 week to 6.62 percent in the April 10 week. Lower rates tempt buyers back into the market at the start of spring when home sales tend to rise along with the temperatures. However, some of those buyers may be opting for an adjustable-rate mortgage. The Freddie Mac weekly average for a 5/1-year mortgage recently peaked at 6.27 percent in the January 16 week and is now down to 5.82 percent in the April 10 week. An adjustable-rate mortgage (ARM) can be attractive to have a lower initial monthly payment. Most of those taking out an ARM will be hoping for a chance to refinance to a fixed rate mortgage with a similar or lower rate.

The present sales index is up 2 points to 45 in April, consistent with slightly stronger sales as those pre-qualified for a mortgage at current lower rates commit to a purchase. However, the index for expected sales is down 4 points to 43, the lowest since 39 in November 2023. This suggests that builders are not optimistic about the sorts of conditions that promote buying of new construction. The report indicated that builders expect interest rates to go higher, along with costs of materials and labor that will push prices higher. Overall, new single-family homes may be a less affordable option with larger supplies of existing homes for buyers to choose from.

The index for buyer traffic is up 1 point to 25 in April but shows sluggish interest on the part of potential homebuyers. Uncertainty about the economy and job security is probably discouraging thoughts of a home purchase.

In April, 61 percent of survey respondents reported offering sales incentives, up from 59 percent in March and 57 percent in April 2024. Twenty-nine percent of respondents cut prices, the same as in March and above 22 percent in April 2024. The size of the price cut is 5 percent in April, also the same as in March, and below 5 percent a year ago.

The index is expected to continue trending down to 38 in the latest month from 39 in March and 42 in February.

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.