US: Housing Market Index

Highlights

The NAHB/Wells Fargo housing market index in January shows homebuilders remain concerned about the future despite lower interest rates. High home prices reduce home affordability, especially for buyers in the lower income ranges. Builders face challenges in in costs for labor and materials, lack land on which to build, and regulations. Although mortgage rates near 6 percent for fixed rate loans will help bring some buyers into the market, the supply of homes could constrain sales. Overall conditions for new home sales remain soft.

The Freddie Mac average monthly rate for a 30-year fixed rate mortgage has been declining steadily in the last few months and has reached an average of 6.12 percent in the first weeks of January. This is the lowest in over three years. However, lower mortgage rates are not the only factor determining sales. Low consumer confidence and an uncertain economic outlook is affecting households' decision-making, especially for big purchases.

The housing market index is down 2 points to 37 in January after an unrevised 39 in December and well below 47 in January 2025. The January reading is below the consensus of 40 in the Econoday survey of forecasts. Although current home sales are holding up, the future looks less positive and buyer traffic is slipping.

The index for present sales is little changed at 41 in January after 42 in December and 41 in November. The index for expected sales is down 3 points to 49 after three months above the 50-mark that points to rising sales in the near future. The buyer traffic index is down 3 points to 23 in January after 26 in December and November.

Homebuilders are using incentives to close sales. In December, 65 percent of homebuilders offered incentives, up from 67 percent in December, but consistent with the trend since August 2025. In January and December, 40 percent of homebuilders offered a price cut, a negligible decrease from 41 percent in November. The average size of the price cut is 6 percent in January, up a bit from 5 percent in December, but the same as November and October.

Market Consensus Before Announcement

The index is expected to tick up again to 40 in January from 39 in December as builder sentiment gradually recovers from last summer’s lows.

Definition

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.

Description

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.

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