On October 26th, we're making our way to the Bay Area to continue our series of fall housing seminars at the Crow Canyon Country Club in San Ramon.  Like many areas across the country, the San Francisco Bay area saw substantial foreclosure activity during the housing bust, but which is now well off its peak.  Our data feature this week, courtesy of Housing IntelligencePro, tracks the improvement this year.  Foreclosures have been falling steadily through 2011, in part because of slow stabilization in the housing market but also because large banks have pulled back from seizing as many homes over the past year due to problems stemming from the “fraudclosure” debacle.  But even if we may see some more waves of foreclosures in the future, they are not likely to get near the highs of 2008/2009, and the pause is helpful in giving the market time to absorb some of the distressed units which aids in price stability.  Hey, in this housing market, every bit of good news is welcome.   For more in-depth insight on how to navigate this difficult market along with some other “silver linings,” please join us next Wednesday, October 26th in San Ramon, we look forward to seeing you there.

In broader economic news, mortgage rates jumped last week after reaching all-time record lows just the week before.  Mortgage rates remain historically low, however, and are expected to stay that way for quite some time.  The rate a 30-year fixed mortgage has averaged under 4.5% nationally for 11 straight weeks. 

Record-low mortgage helped spark homebuilder confidence in October.  The National Association of Homebuilders’ housing market index increased to a reading of 18 this month which is the highest it has been since May of last year.  Construction activity in September picked up significantly due to a jump in multi-family activity.  Housing starts surged 15% last month due to a 1.7% increase in single-family starts and a 53.4% jump in multi-family (5+ unit) starts.  However, building permits declined 5.0% in September which suggests that construction activity may slow in the months ahead.

Existing home sales reverted back to its sluggish pace in September.  According to data released this morning by the National Association of Realtors, existing home sales fell 3.0% from the previous month in September.  Weaker demand pushed median existing home prices to their lowest levels since April.  However, existing home inventory continues to decline which will hopefully help prices stabilize going forward.  Existing home inventory has declined for three straight months and in four out of the last five months.  Lower home prices along with falling mortgage rates helped the existing home affordability ratio reach a new all-time record high in September.

On tap next week will be data on the new home market, GDP, consumer confidence, and personal income/spending.  European Summit talks will likely be a big market mover at the beginning of next week.  These economic reports and news out of the Eurozone will continue to be the leading market drivers.

The Economy
The leading index increased slightly in September to a reading of 116.4 which is a 0.20 point increase from August levels.  The index is up 2.10 points from its levels six months ago when it stood at 114.3 in March.  This is the fifth straight month that the leading index has increased.   However, the pace in which the leading index is increasing has slowed noticeably in the past couple of months which suggests that economic growth will continue albeit at a slower rate.  The leading index is up 1.8% from its levels six months ago, which is the weakest increase over a six-month period for any month since October 2010.  Five out of the index’s ten components recorded monthly gains while only four recorded increases from their levels six months ago.

First-time unemployment claims decreased by 6,000 to a seasonally-adjusted figure of 403,000 in the week ended October 15th from an upwardly revised figure of 409,000 in the previous week.  Initial jobless claims have hovered around this 400K level and have been relatively unchanged for the past several weeks.  They remain at levels that will make it hard for the unemployment to make any marked improvements.

The consumer price index increased in September despite a drop in apparel prices which were offset by increases in energy and transportation prices.  All major expenditure categories recorded increases last month except recreation and apparel.  Headline consumer prices increased 0.3% from last month on a seasonally-adjusted basis while core consumer prices recorded a 0.1% gain.  The consumer price index is up 3.9% from September of last year while core consumer prices are up 2.0% during that time.  This is the largest annual increase in headline consumer prices since September 2008 and the highest annual increase in core consumer prices since November 2008.

Retail sales in the U.S. rose a seasonally-adjusted 1.1% in September.  Despite growing concerns of an economic slowdown and continued readings of falling consumer confidence, retail sales remained strong last month.  This is the largest increase in U.S. retail sales in the last seven months.  Stronger back-to-school spending on apparel along with a 3.6% jump in auto sales fueled gains in retail spending in September.

Preliminary estimates for the October University of Michigan/Reuters consumer sentiment index declined to a reading of 57.5 from a reading of 59.4 in September.  Weaker labor market conditions domestically along with the credit crisis in the Eurozone continue to weigh on consumer sentiment.

Housing Market
Existing home sales dropped in September following last month's rebound.  The seasonally-adjusted annual sales rate of existing homes declined 3.0% from August levels to 4,910,000 units in September.  Existing single-family home sales declined 3.6% from last month at 4,330,000 units while condo and co-op sales increased 1.8% from August levels to 580,000 units.  Compared to the same time last year, existing home sales are up 11.3% from the 4.41 million seasonally-adjusted annual sales that were recorded in September of last year.  However, that increase is overstated since it is being compared to artificial lows set last September due to the expiration of the federal homebuyer tax credit.

Weaker demand pressured median existing home prices lower last month.  In September, the median sales price of an existing home declined to $165,400 from $171,200 in August.  Existing home prices have not experienced a monthly increase since June.  Median existing home prices are now at their lowest levels since April.  The median existing home price is 3.5% lower than the same time last year when the median price was $171,400.

Lower home prices and falling mortgage rates pushed the existing home affordability ratio to a new all-time record high in September.  Affordability based on 30-year fixed mortgage rates increased to 71.5% in September from a downwardly revised reading of 70.0% in August.  The existing home affordability is now at a new all-time record high.  This is the third consecutive month that existing home affordability has increased.

Inventory of existing homes in September declined 2.0% to a preliminary 3,480,000 units from 3,551,000 units in the previous month.  The number of existing homes for sale is also 13.0% lower than it was compared to this time last year.  Existing home inventory has declined for three consecutive months and in four out of the past five months.  This is the lowest level of existing home inventory on the market since January.  At the current sales pace, there are 8.5 months of existing home supply on the market compared to 8.4 months in August.

U.S. housing starts jumped 15.0% from the previous month to a seasonally-adjusted annual rate of 658,000 units compared to a upwardly revised figure of 572,000 units in August.  Housing starts for the previous two months were revised higher by 15,000 units.  This is the highest housing starts have been since April 2010.  A significant jump in multi-family activity was the primary driver behind the increase in housing starts last month while single-family activity increased slightly.  Single-family starts increased in September by 1.7% from the previous month to a seasonally-adjusted annual rate of 425,000 units.  Multi-family starts (5+ units) jumped by 53.4% from August levels in September.

Total building permit activity in September declined 5.0% from the previous month to a seasonally-adjusted annual rate of 594,000 units.  Most of the decline is due to a drop in multi-family building permit activity.  Single-family permit issuance declined a slight 0.2% from last month to a seasonally-adjusted annual rate of 417,000 units while total multi-family permit activity dropped 14.5% from last month to a seasonally-adjusted annual rate of 177,000 units.

Homebuilder confidence in October surged four points from the previous month to a reading of 18.  This is the largest one-month gain for the housing market index since April 2010.  It is the highest the index has been since May 2010.  Record-low mortgage rates helped spark builders' enthusiasm in October.

National average mortgage declined slightly from the previous week to 4.11% with an average 0.8 points in the latest Primary Mortgage Market Survey released weekly by Freddie Mac on October 20th.  Mortgage rates remain at historically low levels.  Rates have now averaged under 5.0% for 35 straight weeks.

In the week ending October 14th, the MBA’s seasonally-adjusted purchase index dropped 8.87% from the previous week.  This is the lowest the index has been since the first week of September.   Overall mortgage application activity this past week fell 14.9% due to noticeable declines in both refinance and purchase activity.  A rise in mortgage rates caused overall mortgage application activity to plunge last 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: