Despite the lowest mortgage rates in a lifetime, the percentage of homes purchased with cash nearly doubled between 2006 and 2011, going from 22% to 40%.  However as we see in our data feature this week, courtesy of Housing IntelligencePro, that phenomenon looks to have finally peaked last year, as in 2012 it has edged down to 38%.  With lending standards still tight but slightly more flexible than in the worst of the housing downturn, with more non-investor home buyers returning to the market, with almost-unbelievably low mortgage rates being further pressured downward by Federal Reserve monetary policy, and with rising existing home prices beginning to broaden the scope of potential housing market participants by incrementally revitalizing formerly-underwater homeowners, the number of homebuyers getting a mortgage increased 9% in the first half of 2012 over the year prior while cash buying was flat.  If the housing market can build on its slow but steady progress, the trend of more traditional home buyers returning to the market should continue.

In broader housing news, both housing starts and existing home sales continued to gain in August while new home sales held steady.  And although overall permit activity was down, single-family building permits which are a better indicator of overall housing market health were also slightly higher.  The continued momentum in the housing market along with record-low mortgage rates helped push builder confidence in September to their highest levels in more than six years.

Existing home sales in August increased for the second consecutive month and are now at their highest levels since May 2010.  Housing starts also increased but more importantly, single-family starts continued to move higher to their highest levels since April 2010.  While new home sales were roughly flat, new home prices jumped to their highest levels in over five years in August.  The housing market is the hottest it has been since the days of the federal homebuyer tax credit.  But unlike activity then, which was artificially boosted by the tax incentive, activity now is driven by stronger fundamental trends.  The U.S. economy has added payrolls for 23 consecutive months and has experienced 30 straight months of private sector job growth.  Mortgage rates also reached an all-time record low this past week at 3.40% and are expected to remain low for the foreseeable future due to the Fed’s open-ended plan to purchase mortgage-backed securities.

The Economy
Final estimates for second quarter GDP growth showed the economy growing at a slower rate than both advance and preliminary estimates suggested.  The U.S. economy expanded at a 1.3% clip in the final second quarter release which is slower than the 1.7% recorded in the preliminary report and the 1.5% recorded in the advance report.  This marks the 12th consecutive quarter that the U.S. economy has expanded.  Downward revisions in consumer spending, business spending, and trade activity were the main reasons for weaker GDP growth.

First-time unemployment claims dropped by 26,000 to a seasonally adjusted figure of 359,000 in the week ended September 22nd from an upwardly revised figure of 385,000 jobless claims in the previous week.  This is the lowest unemployment claims have been in nine weeks.

The consumer confidence index increased in September to a reading of 70.3 from an upwardly revised August figure of 61.3.  After steadily declining over the previous five months, consumer confidence jumped in September to its highest levels since February.  This is mainly due to improving conditions in the Eurozone as bond yields in both Spain and Italy have been on the decline, better housing news in the U.S., and the announcement of QE3 from the Fed which have all caused stock prices to rise to multi-year highs.

Leading economic indicators declined in August to a reading of 95.7 which is a 0.10 point decline from July levels.  The index is up just 0.3% from its levels six months ago when it stood at 95.4 in February.  The leading index has teetered up and down over the past six months with three monthly declines and three monthly increases during that period.  The recent choppiness in the leading index suggests an uncertain economic outlook for the months ahead.

Housing Market
The housing market continued to show positive signs in August.  Residential construction activity picked up while home sales held steady.  Existing home sales posted healthy gains in August while new home sales were relatively flat compared to the previous month.  The announcement of QE3 from the Federal Reserve will serve as additional stimulus for the housing market going forward.  The Fed’s open-ended plan to purchase mortgage-backed securities drove mortgage rates to all-time record lows this week and will keep them near or below these levels for the foreseeable future.

New home sales in August eased 0.3% from the previous month to a seasonally-adjusted annual rate of 373,000 units.  New home sales were revised higher for the previous month of July by 2,000 units to an annual rate of 374,000 units which is the highest they have been since April 2010.  New home sales are up 27.7% from the 292,000 units in August 2011.

Median new home prices in August jumped to $256,900 from a July figure of $231,100.  This is the highest that median new home prices have been since March 2007.  Median new home prices are up 17.0% from this time last year.

New home inventory remained unchanged from the previous month at 141,000 units which is an all-time record low.  New home inventory on a non-seasonally adjusted basis increased to 143,000 units in August.  Seasonally adjusted months of new home inventory remained at 4.5 months in August as both inventory and sales activity were relatively unchanged from last month. Months of new home inventory are at its lowest levels since October 2005.  Months of new home inventory remain at levels that are typical in a healthy housing market.

Existing home sales increased in August to a seasonally-adjusted annual rate of 4.82 million homes which is 7.8% higher than the 4.47 million homes in July.  This is the second straight month that existing home sales have increased and the highest they have been since May 2010.  Sales of existing homes are up 9.3% from this time last year when it stood at 4.41 million homes.  This marks the eighth consecutive month that existing home sales have posted year-over-year gains.  Existing single-family home sales increased 8.0% from last month to 4,300,000 units while condo and co-op sales increased 6.1% to 520,000 units.

Home prices declined slightly despite the increased demand in August.  Median existing home prices declined to $187,400 from $187,800 in July.  This is the second straight month that existing home prices have recorded slight declines following five consecutive months of gains previous to that.  Median existing home prices are still 9.5% higher than this same time last year.  This marks the sixth consecutive month that home prices have posted year-over-year gains.

Inventory of existing homes in August increased 2.9% to a preliminary 2,470,000 units from 2,400,000 units in the previous month.  This matches the highest level of exiting home inventory on the market since May.  Despite this month's increase, the supply of existing homes still show a downward sloping trend over the past year.  The number of existing homes for sale is 18.2% lower than it was compared to this time last year.  At the current sales pace, there are 6.1 months of existing home supply on the market compared to 6.4 months in July.  This is the lowest months of existing home inventory has been since January.

Total housing starts in the U.S. increased in August due to improved activity in the single-family segment.  Housing starts increased 2.3% from the previous month to a seasonally-adjusted annual rate of 750,000 units compared to a downwardly revised figure of 733,000 units in July.  Housing starts in July were revised lower by 13,000 units.  Single-family starts, which are a better indicator of the overall health of the housing market, increased in August by 5.5% from the previous month to a seasonally-adjusted annual rate of 535,000 units.  This is the highest rate of single-family construction activity since April 2010.

Building permits in the U.S. declined 1.0% in August to a seasonally-adjusted annual rate of 803,000 units.  The cause for the decline was due to a drop in multi-family activity while single-family activity remained relatively unchanged.  Single-family permit issuance increased 0.2% from the previous month to a seasonally-adjusted annual rate of 512,000 permits issued in August.  This is the fifth consecutive month that single-family permit activity has increased.  This is also the highest annual rate of single-family permit issuance since March 2010.  Total multi-family permit activity is down 3.0% from the previous month to a seasonally-adjusted annual rate of 291,000 units.

The National Association of Homebuilders' housing market index increased three points from the previous month to a reading of 40 in September.  This is the highest the housing market index has been since June 2006.  The housing market index has now increased for five consecutive months.  Record-low mortgage rates, stronger home sales activity, slow but steady job growth, and the Fed's announcement of QE3 helped support builder confidence this month.

National average mortgage rates declined from the previous week to 3.40% with an average 0.6 points in the latest Primary Mortgage Market Survey released weekly by Freddie Mac on September 27th.  This is an all-time record low for 30-year fixed mortgage rates.  This is the second straight week that rates have declined and they have not recorded an increase in the past five weeks.  Rates have averaged under 4.0% for 27 consecutive weeks and have only averaged above 4.0% one week this entire year.

In the week ending September 21st, the Mortgage Bankers Association’s seasonally-adjusted purchase index increased 0.70% from the previous week.  The Market Composite Index, which is a measure of mortgage loan application volume, increased 2.6% on a seasonally-adjusted basis from the previous week. Gains in both refinance and purchase activity helped push total mortgage application activity higher this past week.

For additional market-level data and analysis please visit our website at http://www.housingintelligence.com.  For more detailed information on  these and other indicators, please visit the following links: