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Market Confidence Increases for August

House on Money BHThe score for the Housing Market Index rose this month along with the rankings for the housing market’s single family sales (current and within the next six months). Despite this, the ranking for traffic of prospective buyers decreased again, according to the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) [1].

The total Housing Market Index rose two points from 58 in July to 60 points in August 2016. The single family sales, both current and for the next six months, rose 2 and 1 points in August 2016 respectively from 63 and 66 to 65 and 67. The traffic of prospective buyers, on the other hand, continued to decrease a point this month from 45 in July to 44 in August.

Regionally, the Northeast and South saw an increase while the Midwest saw a decrease in index points from the previous month. The West's index score stayed the same for this month. The Northeast rose two points from 39 in July to 41 in August while the South saw an even greater increase of four points with July's score of 60 rising to 64 in August. As for the Midwest, the index score dropped two points from 57 to 55. The West remained consistent with the same score of 69 from July to August.

The report states that the HMI is based on a monthly survey of NAHB members designed to take the pulse of the single-family housing market. The survey asks respondents to rate market conditions for the sale of new homes at the present time and in the next six months as well as the traffic of prospective buyers of new homes.

The NAHB survey asks builders to rate sales and sales expectations as “good,” “fair” or “poor” as well as rate traffic of prospective buyers as “high to very high,” “average” or “low to very low”. These three component indexes are calculated by first seasonally adjusting the percentage of responses in the Good/High and Poor/Low categories, then the formula [(Good/High - Poor/Low +100) [2] is applied to the seasonally adjusted numbers to produce an index. This puts each index on a scale ranging from 0 to 100.  The three components are then incorporated into the overall HMI, using weights based on correlations with present and future single-family housing starts.