Understanding the Housing Market Index

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Chances are that you have heard the term “Housing Market Index”, but maybe you are not familiar its purpose. Perhaps you have heard recently that the index is not reflecting well on our current housing market, and you would like a better understanding. In any case, you have come to the right place.

The Housing Market Index is a statistic that is used to gauge the relative health of our housing market on a monthly basis, and is developed by the National Association of Home Builders (NAHB). The NAHB is a U.S. organization comprised of over 800 state and local organizations, and its membership is made up of home builders, remodelers, and other housing industry professionals.

The opinions and professional insights of these NAHB members make up the housing market index. The index is a specific number between 0 and 100 and can be thought of as a percentage. The larger the number, the greater the amount of members who believe that the market is good and that there is a positive demand for new homes. If the market index is 50, for example, then approximately half of home builders have a positive impression of the market and the future outlook, and approximately half have a negative impression.

The index is a weighted measure, and also is corrected for seasonal adjustments. Included in the general index are three sub-categories whose ratings are good identifiers of the overall market. They are:

• Present Single-Family Home Sales (rated as good, fair, or poor)

• Single-Family Home Sales in the upcoming six months (rated as good, fair, or poor)

• Traffic of Buyers (rated as high, average, or low)
  

Below you will find the housing market indexes, as well as the ratings for the subcategories, for the past two years. As of August 2007, the index rating is very low -- at this time, only about 1/5th of NAHB members believe that the market is good. In fact, two of the subcategory ratings are even matching their all-time record lows.

It is incredibly important for potential homeowners to remain up-to-date on the housing market index and on the opinions of industry insiders so that they know the type of buying environment in which they are working. In the current situation, for example, there are huge amounts of available homes on the market, which is driving prices down.

Many experts believe that this is a sure sign of an impending recession. Others speculate that the number of home sales will begin to rise by next year. Whatever the case may be, taking market fluctuations and future outlooks into consideration are crucial for prospective homeowners to make good home-buying decisions. Speak with a trusted certified public accountant and mortgage broker candidly about any market concerns that you may have.