The National Association of Home Builders/Wells Fargo Housing Market Index (HMI), based on large monthly surveys of single-family builders, hit a cyclical high of 72 at mid-2005 and retreated rapidly to a low of 30 in September – the lowest level since early 1991.
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During that period, the overall HMI was dragged down by systematic declines in its three major components: current home sales, expected home sales and buyer traffic. The downswing also showed up in all major regions of the country.
The HMI for October edged up from 30 to 31, halting the dramatic downslide but leaving this measure of builder sentiment in an historically low range. The stabilization apparently reflected recent declines in mortgage rates and energy prices along with a strengthening stock market and a good job market; indeed, these factors also led to a nice rebound in consumer sentiment during the early part of October (University of Michigan series).
It’s also apparent that price cuts and nonprice sales incentives provided by builders have helped buoy buyer demand – an essential precondition to a fundamental rebound in housing market activity.