After falling an aggregate of 12 points in November and December the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) appears to have stabilized.  The HMI, a measure of home builders' confidence in the market for newly constructed homes, gained 2 points in January, rising to 58.  This one 1-point higher than analysts polled by Econoday had predicted.

"The gradual decline in mortgage rates in recent weeks helped to sustain builder sentiment," said NAHB Chairman Randy Noel.  "Low unemployment, solid job growth and favorable demographics should support housing demand in the coming months."

The HMI is derived from a monthly survey that NAHB has been conducting for 30 years among its builders who specialize in new residential construction.  The survey asks builders for their perceptions of current single-family home sales and their expectations for the next six months as "good," "fair" or "poor."  Builders are also asked to rate traffic of prospective buyers as "high to very high," "average" or "low to very low." Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

The component measuring current sales conditions rose 2 points to 63, while builder expectations for the next six months increased 3 points to 64.  The index charting buyer traffic, which consistently lags the others edged up one point to 44.

"Builders need to continue to manage rising construction costs to keep home prices affordable, particularly for young buyers at the entry-level of the market," said NAHB Chief Economist Robert Dietz. "Lower interest rates that peaked around 5 percent in mid-November and have since fallen to just below 4.5 percent will help the housing market continue to grow at a modest clip as we enter the new year."

Regional results are presented as three-month moving averages.  The Northeast's moving average fell 5 points to 45; the Midwest and South both declined by 3 points to 52 and 62, respectively; and the West registered a 1-point drop to 67.

The December report on residential construction (construction permits, housing starts, and unit completions) will not be issued tomorrow because of the partial government shutdown.  NAHB estimates that the data would show that single-family starts ended the year totaling 876,000 units, which would mark a 3 percent gain over the 2017 total of 848,900. However, the slowdown in sales during the fourth quarter of 2018 has left new home inventories elevated in some markets.