NAHB/Wells Fargo US Housing Market Index (HMI) for September was reported at a level of 59.00 up from 55.00 last month and up from 57.00 on year ago.  This is a change of 7.27% from last month and 3.51% from one year ago.  September HMI sentiment has reached its highest reading since November 2005.   Anything above 50 is considered to be a positive sentiment.

To put this September HMI report into perspective, in the following period of the housing crash in 2009, HMI sentiment around was all the way down to 17. 
iShares Dow Jones US Home Construction ETF (ITB - ETF report) traded up about 2.8% in premarket trading following the positive economic news.

If you take look below, this graph is showing the iShares US Home Construction ETF returning about 80% in the past 5 years compared to the S&P 500’s gain of 87.04%. 

The Dow Jones U.S. Select Home Builders Index is a subset of the Dow Jones U.S. Household Goods Index. The Index is a free-float adjusted market capitalization-weighted index. The benchmark measures the performance of the home construction sector of the U.S. equity market. The Index includes companies that are constructors of residential homes, including manufacturers of mobile and prefabricated homes.

ITB vs. S&P 500

Historic Month

Improvement in the job market and low interest rates incurred buying interest this month as the group’s index of foot traffic through model homes has jumped to the highest level since October 2005.  Investors should be seeing how the 2-day meeting conclusion of the FOMC today impacts interest rates which could theoretically impact buyer interest, though with low rates seemingly here to stay for a bit longer, this short-term impact could be minimal.

This steady month over month growth of the HMI sentiment is indicating that the housing market is unleashing pent-up demand and builders are picking up much needed buyer traffic.  It was the fourth straight monthly gain following a length slump in builder sentiment through most of the first half of the year.

"Since early summer, builders in many markets across the nation have been reporting that buyer interest and traffic have picked up, which is a positive sign that the housing market is moving in the right direction," said NAHB Chairman Kevin Kelly, a home builder and developer from Wilmington, Delaware.

Current Sales

The single-family home sales component rose to 63 from 58 and was also the highest reading since December 2013, which was the highest since the financial crisis.

Builder confidence increased in three of four U.S. regions, led by a 12-point jump in the South to 63, the highest since January 2006. Sentiment also advanced in the West and Northeast.

The estimate of single-family sales for the next six months rose to a 13-month high of 67 from 65 and prospective buyer traffic rising to 47 from 42.

Bottom Line

The home market index is obviously showing promising growth since pre-recession days indicting strong consumer demand and builder supply for housing.  Although interest rates are still at record lows, investors should analyze if and how the Federal Reserve will raise interest rates.  If they do decide to use more hawkish “verbiage” in the future, investors should see if demand in housing correlates inversely with the hike in interest rate expectations.