UPDATE: See our follow-up article on Why The Tax Credit Failed 

Suffice to say housing data has not been pleasant to look at lately.  But while conditions are still grim, they aren’t as bad as some of the figures would suggest.  Part of the cause of this is the federal tax credit for home purchases in 2010, which temporarily boosted the pace of new home sales in April and May, and thus new home closings in May and June (see our entry from May 2010, Life After the Tax Credit), with June 2010 having an especially large amount.  When many data sources cite housing data, they tend to do some amount of year-over-year comparison due to the highly seasonal nature of the housing market, even those with complex seasonal adjustment programs weight prior year activity in measuring current conditions.  So not surprisingly, it makes things today look markedly worse.  According to data from Housing IntelligencePro, the number of new home closings on a 12 month rolling basis has been sliding in every month so far in 2011.  But with June 2010 falling out of the rolling 12 month equation, June 2011 is set for a decline of nearly 6%, which is double the drop of March, April and May. 

From that perspective it makes it look things are bad and becoming dramatically worse.  But, if we run an alternative scenario for 2010 wherein the tax credit hadn’t happened and closings were flat year-over-year from May and June 2009, it changes the current outlook notably.  While monthly declines would still be occurring, the projected decline for a rolling 12 months ending in June 2011 would be 2% down from May instead of 6%, and would represent a flattening trend from April to June.  So while conditions are still poor, since we don’t have a tax credit program that will “pull forward” demand from near-future months, it sets the stage for some mild improvement in at least volume trends in the second half of 2011.  A robust recovery is not in the works, but we could see closings more steadily flat year over year and finally establish a bottom in volume terms.

The labor market took center stage last week with a variety of releases to start the month which culminated on Friday with an extremely disappointing June jobs report.  The U.S. economy experienced its second straight month of dismal job growth.  Total non-farm employment growth grew at its slowest pace since September of last year when the economy last experienced a monthly decline in payrolls.  The private sector continued to add jobs in June, albeit at a more lackluster pace which was not enough to offset continued declines in government payrolls.  Slower job growth also led to another slight increase in the U.S. unemployment rate to 9.2% which is the highest it has been since December.

Ahead of the June jobs report, the Labor Department released its Metropolitan Area Employment and Unemployment Summary for May last week before the holiday weekend.  We look at many macro reports on jobs and housing but we all know that looking at both of these on a micro (local) level is equally important.  The Labor Department reported that in May, 201 metro areas across the country actually experienced a year-over-year increase in non-farm employment on a non-seasonally adjusted basis while 157 reported declines and 14 remained unchanged.

The labor market will continue to remain in the spotlight as the economy continues to recover but the focus will shift to U.S. fiscal policy in the coming weeks as the deadline to reach an agreement on the $14.3 trillion debt ceiling approaches on August 2.  It will also be important to keep an eye out on developments in Europe even though austerity measures have been passed in Greece.  If any other Eurozone nations run into sovereign debt issues, it will pose additional risk to the world economy.

The Economy
Total non-farm employment increased by only 18,000 payrolls in June on a seasonally-adjusted basis which was well below what most economists were expecting.  This marks the second consecutive month of sluggish hiring trends.  Total non-farm payroll gains for May were also revised downward to a gain of just 25,000 compared to initial estimates of a 54,000 payroll increase.  June was the weakest month in hiring since September of last year when the economy shed 29,000 non-farm payrolls.

Weaker hiring trends pushed the unemployment rate slightly higher in June.  The U.S. unemployment rate rose to 9.2% in June compared to 9.1% in May.  It is the second straight monthly increase for the national unemployment rate.  This is the highest the unemployment rate has been since December.

First-time unemployment claims declined by 14,000 to a seasonally-adjusted figure of 418,000 in the week ended July 2nd from an upwardly revised figure of 432,000 last week.  Jobless claims have teetered in this mid-to-low 400,000 range for the past few weeks which suggests that labor market conditions are not worsening but are not improving either.  First-time unemployment claims remain at elevated levels that will make it difficult for the labor market to experience any significant improvement.

Housing Market
National average mortgage increased again from the previous week to 4.60% in the latest Primary Mortgage Market Survey released weekly by Freddie Mac on July 7th.  Rates have recorded increases for two consecutive weeks and have not recorded a decline in the past four weeks.  Rates are now back to their highest levels since the end of May.  However, mortgage rates remain at historically low levels and have averaged under 5.0% for 20 straight weeks.

In the week ending July 1st, the MBA’s seasonally-adjusted purchase index increased 4.77% from the previous week and was up 12.04% compared to this same time last year.  This is the first increase for the purchase index in three weeks.  The index is rebounding off its lowest levels since mid-February set last week.
 
For additional market-level data and analysis please visit our website at http://www.housingintelligence.com.  For more detailed information on New Home Sales and other indicators, please visit the following links: