Markets where REO sales are the majority of all home transactions form the basis for this week’s data feature, courtesy of Housing IntelligencePro.  A few years ago suggesting such a notion would have likely prompted suggestions to visit to the local mental health clinic.  But several years of a depressed housing market and millions of foreclosures have made the scenario a reality for these eight MSAs in the 3rd Quarter.  If there is a silver lining at least it means these distressed properties are moving their way through the system and back into the market, although with the more recent difficulties related to foreclosures we could see that process slow down. 

In broader housing news, despite record low mortgage rates and a slightly improving economy, home sales in both the new and existing home markets posted declines from both the previous month and the same year-ago period.  When considering October’s home sales declines, we should keep in mind that sales activity experienced a surge this time last year due to the expiration of the original homebuyer tax credit that was eventually expanded and extended.  Those inflated figures will exaggerate the year-over-year declines we are currently experiencing, but the reality is housing activity continues to drag around the bottom.

The November jobs report released today was significantly less encouraging than last month’s.  Total non-farm employment last month came in well below expectations, and the unemployment rate rose from last month; it currently sits at its highest levels since April.  The dim November employment report is further evidence that economic recovery remains sluggish at best.

A jump in purchase mortgage applications over the past couple of weeks offers some hope that sales activity may be trending slightly better for November.  After hitting all-time lows just three weeks ago, fixed mortgage rates have now increased three consecutive weeks after the Fed announced its plans for additional quantitative easing.  While mortgage rates are still at historically low levels, steadily rising rates may be pressuring some potential buyers who are sitting on the sidelines to make a move now while affordability is still near all-time highs.

Retail sales figures and consumer confidence data have shown some incremental improvement in recent months leading up to the key holiday shopping season.  The Reuters/University of Michigan consumer sentiment index in November increased to its highest levels since June while the Conference Board’s consumer confidence index rose for the second straight month.  This is a helpful indication for the retail sector in their busiest time of year, and important for the broader economy since consumer spending accounts for more than two-thirds of GDP.  Stronger consumer spending along with upward revisions to government spending and trade activity pushed economic growth to 2.5% in the preliminary estimates from 2.0% in advance estimates.  Increased consumer activity will help steadily improve economic growth which will lead to more jobs and a healthier housing market.

The Economy
Total non-farm employment increased by a seasonally-adjusted 39,000 payrolls in November.  This was much lower than what economists were expecting and also much lower than the 172,000 jobs gained in October.  However, this does mark the second consecutive month that total employment in the U.S. has increased.  Employment for the months of September and October were revised higher by a total of 38,000 jobs which is shows that the labor market was slightly stronger than previously thought.

The U.S. unemployment rate increased to 9.8% in November from 9.6% in October.  This is the first monthly increase in the national unemployment rate since April and the highest it has been since then.

First-time unemployment claims rose this past week after reaching its lowest levels in over two years last week.  Initial jobless claims jumped by 26,000 in the week ended November 27th to a seasonally-adjusted 436,000.  Jobless claims continue to teeter up and down and have not shown any encouraging signs of falling and remaining under the 400,000 level that would be needed to chip away at the high levels of unemployment and underemployment.

Recent readings have also shown that consumers are gaining more confidence.  Consumer confidence increased to a reading of 54.1 in November compared to a revised figure of 49.9 last month.  This is the second straight month that the consumer confidence index has increased and the highest it has been since June.  Both the present situation and expectations indexes increased as well.  The Reuters/University of Michigan consumer sentiment index rose to a reading of 71.6 in November from 67.7 in October.  This is the highest the index has been since June.

After declining in September, personal incomes rebounded 0.5% in October.  Personal incomes in the United States increased to $12,676.9 billion compared to an upwardly revised figure of $12,619.3 billion in September.  Personal incomes are up 4.1% from $12,178.7 billion in October of last year.  Personal incomes recorded its strongest annual increase in October since August 2008.

Preliminary estimates for third quarter gross domestic product showed the economy growing faster than advance estimates had suggested. The U.S. economy grew 2.5% during the third quarter which is stronger than the 2.0% pace in the advance third quarter report. This marks the fifth straight quarter that the U.S. economy has expanded. Improvements to consumer and government spending along with an increase in export activity contributed to the upward revision in the preliminary third quarter report.

Housing Market
The National Association of Realtors’ Pending Home Sales Index rebounded in October which is a positive sign of resurgent demand after a steady decline following the expiration of the federal homebuyer tax credit.  The Pending Home Sales Index increased 10.4% to a reading of 89.3 in October compared to a reading of 80.9 in September. 

Both new and existing home sales continued to struggle despite falling mortgage rates and steadily improving economy in October.

New home sales declined 8.1% from the previous month to a seasonally-adjusted annual rate of 283,000 units in October.  New home sales activity has dropped significantly since the expiration of the federal homebuyer tax credit.  The annual sales pace in October is down 31.6% from April levels.  New home sales for the previous three months were also revised lower by 14,000 units.   Sales activity in the new homes market have teetered up and down in the past few months but continue to tread around the all-time low levels set in August.

Weaker demand caused median new home prices to plunge in October.  New home prices fell 13.9% from the previous month to $194,900 from an upwardly revised September figure of $226,300.  October’s monthly decline was the largest on record.   Median new home prices are now at their lowest levels since October 2003. Median new home prices are down 9.4% from this time last year and down 8.6% from this time two years ago. This is the sharpest annual decline in new home prices since July 2009.

However, lower prices and record-low mortgage rates have pushed new home affordability to an all-time high.  The new home affordability ratio surged to 64.5% from 57.9% in the previous month.

New home inventory continued to decline in October which will help prices stabilize when demand returns.  New home inventories declined to 202,000 units on a seasonally-adjusted basis in October.  Inventory has declined for five consecutive months and has not recorded a monthly increase in nine months.

Existing home sales declined 2.2% from the previous month to 4,430,000 units despite record-low fixed mortgage rates in October.  Sales of existing single-family homes declined 2.0% to 3,890,000 units while condo and co-op sales dropped 3.6% from last month to 540,000 units.   Existing home sales were off 25.9% from October of last year when the seasonally-adjusted annual sales rate stood at 5,980,000.  However, it is important to note that sales activity during this time last year was inflated due to the expiration of the original homebuyer tax credit that was extended.  So while demand is definitely weaker than year-ago levels, the year-over-year comparisons may be slightly exaggerated.

Record-low mortgage rates and steadily declining price levels have pushed resale affordability to an all-time high.  The existing home affordability ratio increased to a reading of 69.3% in October from 68.8% in September.  This was the fourth consecutive month that existing home affordability has increased.  The median existing home price declined to $170,500 in October from $171,500 in September and $172,000 during this same month last year.  This was the fourth straight month that existing home prices have declined and the lowest they have been since March.

Inventory of existing homes declined 3.4% to a preliminary 3,864,000 units from 4,000,000 units in September.  This is the second straight month that existing home inventory has declined and the lowest it has been since March.  However, October's inventory level is still 8.4% higher than the 3,565,000 units of inventory on the market during the same year-ago period.  Existing home inventory remain at historically high and unhealthy levels.

National average mortgage rates increased from the previous week to 4.46% in the latest Primary Mortgage Market Survey released weekly by Freddie Mac on December 2nd.  After reaching all-time record lows three weeks ago, mortgage rates have now increased for three consecutive weeks.  This is the highest rates have been since the first week of August.  However, mortgage rates have now averaged less than 5.0% for 30 straight weeks.

In the week ending November 26th, the MBA’s seasonally-adjusted purchase index increased 1.07% from the previous week but was still down 10.8% compared to the same time last year.  This is the second straight week that the purchase index has increased and the highest it has been since early May.

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