With the surge in distressed real estate sales over the past couple of years, new homes have made up a smaller portion of overall housing activity.  Based on data from Housing IntelligencePro, the proportion of new home sales declined to 9.5% of total home sales in the third quarter of this year compared to 10.5% during the same period a year ago.  However, there were some areas across the country that did experience an increase in new home activity.  Our data feature of the week focuses on places with the largest share of new home sales as a portion of the overall market, with a minimum of 1,000 closings during the quarter.  The results show that the Carolinas stick out.  Fayetteville, NC had the highest number of new home sales as a percentage of the overall market.  Over 32% of all the homes closed in the third quarter were in the new homes segment which is up about 31% during the third quarter of last year.  The fourth and ninth highest concentrated markets, Huntsville, AL and Charlotte, NC, both also experienced an increase in new home activity compared to year-ago levels.  Ten out of the top-17 areas across the U.S. with the highest concentration of new home sales activity were in the Carolinas.

Housing data released this week painted a mixed picture as housing starts plunged but building permits experienced slight gains.  A drop in construction is not entirely surprising since we are entering a time in the year when housing typically slows down.  Year-over-year comparisons will show slightly slower construction activity this year but one has to keep in mind that the federal housing tax credit created unusually high demand during the final few months of last year.  Stabilization in building permits indicate that construction activity going forward is still following a slowly improving trend.

In broader economic news, mortgage rates jumped this past week while international concerns cast another cloud over the markets.  Some of the negative effects of QE2 kicked in this past week as a drop in bond prices pushed yields noticeably higher.  Fixed mortgage rates popped to their highest levels since August just a week after reaching an all-time record low.  Concerns over the debt crisis in Ireland and the possibility of slower economic growth in China due to the tightening of monetary policy plagued equity markets this past week.

However, another increase in the leading index along with stronger-than-expected October retail sales figures were good indications that the economy remains on a slow and steady upward trend.  Despite slower growth estimates for 2011, the increase in leading economic indicators suggests an upward bump in activity in the early portion of next year.  Stronger retail sales in October before we enter the key holiday shopping season is also a very positive sign since consumer spending now accounts for over two-thirds of GDP.  The holiday shopping season and October home sales data will be the key things to focus on in the coming weeks.

The Economy
The leading index increased to a reading of 111.3 in October which is a 0.60 point increase from September levels.  The index is up 1.80 points from its levels six months ago when it stood at 109.50 in April.  This is the fourth consecutive month that the leading index has increased.  With the exception of vendor performance and manufacturers' orders for capital goods, every component for the leading index posted a gain last month.  Eight out of ten components experienced a month-over-month increase while five out of the ten indicators posted increases compared to its levels six months ago.

Initial unemployment claims increased by 2,000 in the week ended November 13th to a seasonally-adjusted figure of 439,000.  First-time jobless claims were relatively unchanged this past week which is a sign that layoffs have slowed but hiring also remains slow.  It is unlikely that overall labor market conditions will improve markedly with initial jobless claims at these levels.

The consumer price index increased in October due to higher energy and transportation costs.  Headline consumer inflation increased 0.2% from last month on a seasonally-adjusted basis while core consumer prices remained flat. 

On an unadjusted basis, headline CPI increased 1.2% from its year ago levels while core CPI increased 0.6% year-over-year in October.  This was the tamest annual increase in core consumer prices that we have on record starting from 1980.

October retail sales were stronger than expected which is a positive sign heading into the holiday shopping season.  Retail sales increased 1.2% from September levels and were up 7.3% from October of last year.  Total retail sales figures were also revised slightly higher for September which is further good news.

Housing Market
U.S. housing starts plunged 11.7% to a seasonally-adjusted annual rate of 519,000 units in October.  This is the lowest annualized rate of housing starts since April 2009.  Most of the downward pressure came in the multi-family segment while single-family construction activity eased slightly.  Single-family starts declined 1.1% from last month to an annual rate of 436,000 while multi-family starts plunged 43.5% to an annual rate of 83,000.

Total building permit activity increased 0.5% from the previous month to a seasonally-adjusted annual rate of 550,000 units.  Single-family permits, which give a more accurate assessment of overall conditions, posted a 1.0% gain in October to a seasonally-adjusted annual rate of 406,000 units.  Multi-family permit activity remained relatively unchanged, easing 0.7% from September levels to a seasonally-adjusted annual rate of 144,000 units.

Record-low mortgage rates and steady improvement in the economy helped builder confidence increase again in November. The National Association of Homebuilders' housing market index increased one point from the previous month to a reading of 16 in November from a downwardly revised October figure of 15. This is the second straight month that the index has increased and the highest the index has been since June.

National average mortgage rates increased from the previous week to 4.39% in the latest Primary Mortgage Market Survey released weekly by Freddie Mac on November 18th.  After reaching all-time record lows last week, mortgage rates this week surged to its highest levels since August.  Mortgage rates have now averaged less than 5.0% for 28 straight weeks.

In the week ending November 12th, the MBA’s seasonally-adjusted purchase index dropped 5.03% from the previous week and was down 11.98% compared to the same time last year.  This was the first weekly decline for the purchase index in the last four weeks.  The index still remains near 14-year lows.

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