The entire market is represented by the market index, which covers all mortgage applications during the week. This includes all conventional and governmental ones. A mortgage index is the reference interest rate on which the fully indexed interest rate of an adjustable rate mortgage (ARM) is based. The interest rate on an adjustable rate mortgage, a type of fully indexed interest rate, consists of an indexed value plus an ARM margin.
The margin tends to be constant, but the value of the index is variable. Several reference interest rates serve as mortgage indices. The HMI series remained within a relatively narrow band, between 50 and 64, until the late 1980s, when it began to decline due to problems in financial markets focused on the domestic savings and loan industry. Each month, the HMI shows the general sentiment of builders regarding real estate market conditions on a scale that ranges from 0 to 100.
In 1994, a peer-reviewed article published in the Journal of Real Estate Research by John Goodman (a research economist with the Federal Reserve Board of Governors) showed that the NAHB survey was the only one of several known attitude surveys that significantly helped predict real estate market variables, such as initial values. However, when mortgage rates are high, many Americans find it more difficult to pay a monthly mortgage on a home that meets their needs. Three years later, the financial market crisis emerged, causing the Great Recession and a historic fall in real estate markets. Builders' confidence in the new single-family home market fell to 39 in August, down two points from the downwardly revised reading of 41 in July.
