Highlights

• Mortgage rates fell in the week ending October 8, compared to the previous week with the exception of the 1-yr ARM.
• The 30-year mortgage rate dropped 7 basis points to 4.87 percent compared to a week ago, while the 1-year adjustable mortgage rate rose 4 basis points  to 4.53 percent compared to a week ago.
• The 30-year mortgage rate is now 20 basis points below its month ago levels.

 Source: Freddie Mac

Analysis

The 30-year fixed-rate mortgage averaged 4.87 percent for the week of October 8, down from a 4.94 percent rate posted one week earlier according to Freddie Mac’s weekly primary mortgage market survey.  The long-term mortgage rate is almost 1 percentage lower than the 5.94 percent 30-year mortgage posted a year ago. The popular mortgage rate is now comfortably below the 5 percent watermark and is approaching record territory.

 The survey also reported that the 15-year fixed-rate mortgage averaged 4.33 percent for the current week down from last week when it averaged 4.36 percent. This is the lowest the 15-year fixed-rate mortgage has been since Freddie Mac began following it in 1991.  The 1-year adjustable-rate mortgage rose slightly to 4.53 percent in this week’s survey compared to a 4.49 percent rate in last week’s survey.

 Long term mortgage rates continue to fall;  30-year fixed-rate loans were the lowest since mid-May.  Historically low mortgage rates are keeping homes affordable and are enticing first-time homebuyers to purchase homes. Affordability measures have been hovering near record levels all year long. And it is clear that very low mortgage rates are driving mortgage demand. A weekly survey conducted by the Mortgage Bankers Association released on Wednesday, reported that in the week ending October 2, mortgage applications climbed to a 19-week high. More importantly for future home sales, applications for home purchases were at the highest pace since the beginning of the year.

This week’s mortgage rate survey is further evidence that the Federal Reserve continues to apply downward pressure on interest rates. In its September 23rd policy statement, the central bank indicated that it plans to keep its benchmark interest rate exceptionally low for an extended period. This bodes well for the direction of future mortgage rates and the mortgage and housing industries.

Highlights

• Existing home sales fell 2.7 percent to an annualized pace of 5.10 million in August. The annualized home sales in August is now 3.5 percent above its pace from a year ago.
• August’s sales pace is equal to 3 month average of 5.10 million units.
• The Midwest, South, and Northeast experienced decreases of 6.7 percent, 3.1 percent and 2.2 percent, respectively, while the West experienced an increase of 2.7 percent. 
• It was reported that 31 percent of home sales were foreclosure and short sales in August, no change from July.
• The median home price declined 12.5 percent from a year ago.
• The months’ supply of homes available for sale dropped to 8.5 compared to 9.3 in July. 

Highlights

• The housing market index rose by 1 point in September to 19 from a 18 registered in August.
• The September index of 19 is 2 points above the 17 registered in September of 2008.
• The buyer traffic index rose slightly to 17 in September from 16 in August.
• Homebuilder expectations over the next 6 months fell 1 point to 29 compared to a August index of 30.

 Source: National Association of Home Builders

Analysis

The housing market index is a leading indicator of future new home sales. The September numbers reflect a slight upward trend in the homebuilding industry. The September index of 19 is now 11 points above the cyclical bottom of 8 set in January.  However, the September index remains at a relatively low level and a downside still remains due to the economic recession, mounting job losses, tight credit conditions and mounting foreclosures.  An excess inventory of homes and the frightful prospect of a sizeable amount of option ARM and interest only resets over the next two years are keeping builder optimism at bay. We continue to believe that the homebuilding recovery will be a slow and painful one.

Highlights

• Residential housing construction registered 598,000 units in August, up 1.5 percent from July. Total starts are hovering near highest levels since November of last year.
• The 3 month average is 592,000 which has risen during the past three months.

• The increase in starts were due to primarily to a 25.3 percent rise in multi-family starts. Single family starts were down 3.0 percent in August.
• Building permits rose 2.7 percent in August to 579,000, which portends favorably for future residential construction activity.

Source: Census Bureau

Analysis

The modest rise in housing starts was due to a relatively large increase in multifamily starts, while single family starts fell 3.0 percent in August. Single family starts had risen for five consecutive months before falling in August.  Single family starts are now 22 percent below the pace of a year ago.  On a more positive note, total permits rose by 2.7 percent in August.  H owever, permits are 32 percent below its year ago pace.  Multlifamily starts were up 25 percent for the month and continues to exhibit volatility from month to month.

New residential construction activity has been trending slightly upward since bottoming in January of this year. Thus, it appears that homebuilding has stabilized somewhat.  Today’s housing starts data suggests that the housing sector may be improving.  With the exception of August, single family starts have dominated residential construction activity throughout the year which is a healthy sign for the residential building industry. Furthermore, the annualized pace of housing permits has made modest improvements throught the year, another favorable sign for future residential construction activity.

All three major housing measures– starts, existing home sales and new home sales- are above their cyclical lows. And even though housing inventories remain excessive, the supply of homes on market has slowly come down. In fact, the new homes inventory levels are within a healthy range under normal housing conditions.

Looking forward, caution must be exercised with any outlook for new residential construction. The federal homebuyer tax credit expires in December which may slow homebuilding somewhat. In addition, we are concerned about the possibility of a worsening in the foreclosure situation. A substantial amount of option ARM and interest only mortgage loans are due to reset within the next two years which is likely to add a considerable number of  foreclosure properties to an already building pipeline. Mounting foreclosures are expected to inhibit new home building in the near terrm. On balance, there are greater downside risks than upside potential in the new residential construction marketplace.  Although housing starts have turned up from its bottom set earlier this year, we continue to believe that residential contruction activity will remain weak and below potential trend for the next several years.

Highlights

• The pending home sales index rose 3.2 percent in July to 97.6, compared to 94.6 in June.
• The pending home sales index rose 12.1 percent from a year ago.
• The West, South and Midwest recorded increases of 12.1, 3.1 and 2 percent, respectively, while the Northeast decreased 3 percent in July from a month earlier.

 Source: National Association of Realtors; index is seasonally adjusted

Analysis

The July pending homes sales release offered favorable news for future existing home sales activity in our nation’s housing sector. The index experienced healthy increases on a month over month and year over year basis. The index has increased for six consecutive months and is over 21 percent above its January low.  All four regions of the nation experienced year over year increases in July.

Although there is still some fallout from pending contracts to actual closings, the pending home sales index is becoming a more reliable indicator of future existing home sales. Pending home sales measures contracts on existing homes rather than closings so the improvement in the index usually portends favorably for future existing home sales reports. It is likely that recent increases in existing home contracts are due to improved affordability conditions as well as the first-time homebuyer tax credit.

Looking forward, it is likely from a sales perspective, that the housing sector is gaining a modest momentum from its recent cyclical bottom. The major housing measures– housing starts, existing home sales and new home sales have all posting numbers slightly above their January cyclical lows.  This pending home sales release suggests that it is likely that existing home sales may drift slighty upward in the coming months. However, a recession, a weak labor market and the expiring of the federal government’s home tax credit will keep the housing sector from experiencing any meaningful gains for the remainder of this year.

Highlights

• New home sales rose 9.6 percent in July to an annualized 433,000 units compared to 395,000 annualized units posted in June.
• The healthy increase in sales was welcome news. New home sales were mixed by region. The sales in the Northeast, South increased a healthy 32.4 percent and 16.2 percent, respectively, while sales in West rose by only 1 percent and sales in the Midwest fell 7.6 percent from a month earlier.
• The months supply fell to 7.5 in July from 8.5 in Juney.
• The median new home sales price was down 11.5 percent compared to a year ago.

Source: Census Bureau; median home price not seasonally adjusted

Analysis

The increase in new home sales in July was surprisingly strong. The 433,000 unit annualized pace set in July was the strongest pace  this year and  new home sales has now rose for four consecutive months. True, the current annualized pace of 433,000 continues to reflect a very weak new home sales marketplace, but it is now significantly above the 329,000 annualized pace set in January of this year. Clearly, the January number was the bottom for new home sales which is showing strong signs of stabilizing.

The inventory of new homes has made significant progress over the past year.  A healthy drop in new homes available for sale has brought the months’ supply down to 7.5 in July from a high of 12.4 in January of this year. It appears that the year long weak new construction activity has had a positive impact on new home inventories.  It also appears that price depreciation has helped support new home sales.  The median new home sales price fell 11.5 percent from a year ago. Homebuilders continue to drop prices in an effort to compete against foreclosure sales.

Most economic and housing indicators point towards more stabilization in the new home marketplace. Monthly job losses are slowing, the Obama administration’s foreclosure mitigation programs are beginning to slow foreclosure filings, home affordability measures remain at high levels, and mortgage rates are hovering near historic lows. However, the economic recesssion and falling home prices continue to pose serious risks to the nation’s housing sector. And we are particularly worried about the apparant building pipeline of foreclosures which could inhibit future new home sales, and exert downward pressure on new home prices. The Mortgage Bankers Asssociation’s mortgage delinquency survey (third quarter) reported that the 90 days or more delinquent category rose to another record level, which suggests a rise in future foreclosure filings. On balance, we continue to believe that the housing sector bottomed out earlier this year, and is poised to experience a very modest recovery at best by the end of this year with the exception of home values which may continue to fall well into 2010.

Highlights

• Existing home sales rose 7.2 percent to an annualized pace of 5.24 million in July. The annualized home sales in July is now 5.00 percent above its pace from a year ago.
• July’s sales pace is significantly above its 3 month average of 4.95 million units.
• The Northeast, Midwests and South experienced increases of 13.4 percent, 10.9 percent and 7.1 percent, respectively, while the West experienced a drop of 1.7 percent. 
• It was reported that 31 percent of home sales were foreclosure and short sales in July, no change from June.
• The median home price declined 15.1 percent from a year ago.
• The months’ supply of homes available for sale stayed at 9.4 compared to 9.4 in June. 

Highlights

• Residential housing construction registered 581,000 units in July, down 1.0 percent from June. Total starts are hovering near highest levels since November of last year.
• The 3 month average is 573,000 which has risen during the past two months.

• The decrease in starts were due to primarily to a 13.3 percent drop in multi-family starts. Single family starts were up 1.7 percent in July.
• Building permits fell 1.4 percent in July to 560,000, which does not portend favorably for future residential construction activity.

Source: Census Bureau

Analysis

The modest decline in housing starts was due to a relatively large drop in multifamily starts, while single family starts rose 1.7 percent in July. Single family starts are now at their highest pace since October of last year. However, single family starts are still 22 percent below the pace of a year ago.  Total permits dropped by 1.7 percent in July and are now 39 percent below their year ago pace.

New residential construction activity has been trending slight upward since bottoming in January of this year. Thus, it appears that homebuilding has stabilized somewhat.  Today’s housing starts data suggests that the housing sector may be improving.  All three major housing measures– starts, existing home sales and new home sales- are above their cyclical lows. And even though housing inventories remain excessive, the supply of homes on market has slowly come down. In fact, the new homes inventory levels are within a healthy range under normal housing conditions.

Looking forward, caution must be exercised with any outlook for new residential construction. The federal homebuyer tax credit expires in December which may slow homebuilding somewhat. In addition, mortgage rates have been trending upward and the economy continues to shed jobs.  We can only hope that the  fiscal stimulus package will eventually have a positive influence on the housing sector. Furthermore, we do expect that Obama’s foreclosure mitigation plan will eventually slow the pace of foreclosures, providing more opportunities for new home sales. On balance, the housing sector remains weak and there remain risks to the downside.

Highlights

• The pending home sales index rose 3.6 percent in June to 94.7, compared to 91.3 in May.
• The pending home sales index rose 6.7 percent from a year ago.
• The South and West recorded the largest monthly increases of 7.1 percent and 2.9 percent, respectively. The Midwest and Northeast posted 0.8 percent and 0.4 percent increases, respectively.

 Source: National Association of Realtors; index is seasonally adjusted

Analysis

The June pending homes sales release offered favorable news for future existing home sales activity in our nation’s housing sector. The index experienced healthy increases on a month over month and year over year basis. The index has increased for five consecutive months and is over 17 percent above its January low.  All four regions of the nation experienced monthly increases in June.

Although there is still some fallout from pending contracts to actual closings, the pending home sales index is becoming a more reliable indicator of future existing home sales. Pending home sales measures contracts on existing homes rather than closings so the improvement in the index usually portends favorably for future existing home sales reports. It is likely that recent increases in existing home contracts are due to improved affordability conditions as well as the first-time homebuyer tax credit.

Looking forward, it is likely from a sales perspective, that the housing sector is gaining a modest momentum from its recent cyclical bottom. The major housing measures– housing starts, existing home sales and new home sales have all posting numbers slightly above their January cyclical lows.  This pending home sales release suggests that it is likely that existing home sales may drift slighty upward in the coming months. However, a recession and a deteriorating job situation will keep the housing sector from experiencing any meaningful gains for the remainder of this year.

Highlights

• The Case-Shiller 10-city index fell 16.8 percent in May compared to a year earlier.
• The Case-Shiller 20-city index fell 17.1 percent in May compared to a year earlier.
• All of the 20 metros reported annual rates of decline.

Source: Standard & Poors

Analysis

The Case-Shiller indices fell at a slower year over year pace in May than in March and April, but not by much.  However, the 20 city index increased by 0.5 percent in May from April, while the 10 city index increased by 0.4 percent on a month to month basis. This was the first monthly increase in the monthly index since July 2006.  Seventeen of the twenty cities experienced slower year over year depreciation between May and April.  Phoenix, Las Vegas and San Francisco experienced the largest year over year declines at 34.2 percent, 32 percent and 26.1 percent, respectively. Conversely, Dallas, Denver and Cleveland experienced the smallest price losses in May, registering a negative 4.1, 4.6 and 6.2 percent, respectively.

It appears that a decrease in foreclosure sales has contributed to the slowing of price depreciation in the Case-Shiller indices. However, foreclosure sales could pick up again which would exert downward pressure on home values. On a positive note, both existing and new home inventories are shrinking which suggests a further slowing in price depreciation in the coming months. However, the flow of foreclosures into the marketplace remains the wild card.