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Housing Still Hot?

Is the housing market still heating up or is it slowing down? Will it continue picking up speed? Or will it grind to a halt? The most recent NAHB (National Assn. of Home Builders)/Wells Fargo HMI (housing market index) points to some interesting trends.

The HMI is based on a monthly survey of NAHB members, and it is designed to take the pulse of the single-family housing market into account. The survey asks respondents to rate market conditions for various components.

Here is a more in-depth look at how it works. The index is a weighted average of three separate component indices: present single-family sales, single-family sales for the next six months, and traffic of prospective buyers. Each month, a panel of builders rates the first two on a scale of “good,” “fair,” or “poor,” and the last on a scale of “high to very high,” “average,” or “low to very low.” An index is calculated for each series by applying the formula “(good – poor + 100)/2” or, for Traffic, “(high/very high – low/very low + 100)/2.”

From there, each index is then weighted to produce the HMI, and can range between 0 and 100. The most recent one, released in May, shows continued decline. Overall, the HMI has fallen for the fifth month in a row, and reaches a level of 69, which is the lowest it has been in months.

Not only that, but every housing component fell as well, including single family sales at present, single family sales in the next 6 months, and traffic of prospective buyers, each falling significantly at 8 points or more. Does this signal the downfall of the housing market? Possibly.

It’s not only housing that is taking a hit. Many economists and financial pundits are predicting a recession looming in the months ahead, much like the conversations we were having back in 2019. Many signs are pointing to the fact that we are heading in this direction—from shaky confidence indices to housing market stalls.

For builders, there are many things to do to prepare such as reducing expenses, buying less land, refocusing workers, reskilling, upskilling, leveraging technology to fill in the gaps, and improve margins. The time is now. How will you prepare for what lurks ahead?  

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