Americans will celebrate Independence Day this weekend, but recent housing data hasn’t given much cause for celebration.  The housing market hasn’t been very independent either, relying upon federal tax credits and artificially low mortgage rates over the past year.  Since the tax credit expired, housing activity has dropped off considerably, and by most recent measures the trend is likely to continue in the near term.

Unemployment claims increased this past week also, prompting additional concern over of tomorrow’s jobs report from the Labor Department.  Weekly jobless claims remain stubbornly elevated and have yet to show any meaningful sign of retreating despite the U.S. economy growing for three consecutive quarters now.  Many Americans remain dependant on unemployment benefits.  In the week ending June 12, there were an estimated 9.29 million people collecting some form of unemployment compensation from the government.

Much of what happens in the U.S. economy also has links to events in the Euro-zone and China.  The Euro-zone sovereign debt crisis has resulted in an ugly week for international equity markets.  Other global factors include weak manufacturing data out of China, which was not welcome news in equity markets across the globe.  Weaker economic growth in Europe and China will significantly limit the economic rebound here in the U.S.

The Economy
Initial unemployment claims increased this past week after hitting a six-week low in the previous week.  In the week ending June 26, first-time jobless claims increased by 13,000 from the previous week to a seasonally-adjusted figure of 472,000.

The consumer confidence index dropped to a reading of 52.9 in June from a downwardly revised May figure of 62.7.  Confidence plunged in June, following three consecutive months of increases, which bring the consumer confidence index back down to its lowest levels since March.  The number of people surveyed that plan to buy a home within the next 6 months declined to 1.9% from 2.1% while the portion that plans to buy a new home declined to 0.2% from 0.3% in the previous month. The drop in homebuyer activity is due to the expiration of the homebuyer tax credit and re-emerging concerns about an economic recovery.

Final estimates for first quarter gross domestic product showed the economy expanding slower than both advance and preliminary estimates had suggested. The U.S. economy grew 2.7% during the first quarter which is weaker than the 3.0% pace in the preliminary release and the 3.2% growth in the advance report.  However, this still marks the third straight quarter that the U.S. economy has expanded.  A downward revision in consumer spending, which accounts for over two-thirds of GDP, was the main driver behind the decline in the final first quarter GDP figure.

Housing Market
National average mortgage rates declined again from the previous week to a new all-time low of 4.58% in the latest Primary Mortgage Market Survey released weekly by Freddie Mac on July 1st.  This is the second straight week that rates have declined and also the second straight week that the 30-year fixed rate mortgage hit new all-time lows.  Falling stock prices have caused a “flight to safety” in Treasury bonds which helped push mortgage rates to new record lows.

In the week ending June 25th, the MBA’s seasonally-adjusted purchase index declined 3.26% from the previous week and was down 35.71% compared to the same time last year.  The purchase index has recorded declines in seven out of the past eight weeks which continues to suggest weaker demand in the housing market following the expiration of the federal homebuyer tax credit at the end of April.

Home sales in both the new and existing home markets posted declines in May as the expiration of the federal homebuyer tax credit at the end of April caused a significant drop in demand.

New home sales plunged 32.7% in May to a seasonally-adjusted annual pace of 300,000 units.  New home sales are now at their slowest annual pace on record.  New home sales for the previous three months were also revised lower by 99,000 units.  New home sales experienced a surge in activity in the past couple of months because of the federal homebuyer tax credit but fell off precipitously in May following its expiration.

Median new home prices in May declined slightly to $200,900 from an upwardly revised price of $202,900 in April.  Prices are down 1.0% from the previous month and are 9.6% lower than they were this time last year.  Median new home prices are now at their lowest levels since December 2003.

In May, new home inventories declined from the previous month to 213,000 units on a non-seasonally adjusted basis.  New home inventory has now recorded 33 straight months of declines and has not recorded a monthly increase in inventory levels since May 2007.  Seasonally-adjusted inventory of unsold homes also declined in May to 213,000 units.

New home inventory levels are currently sitting at new all-time lows.  However, months of inventory jumped last month due to a significant drop in sales activity.  Seasonally-adjusted months of inventory jumped to 8.5 months in May from 5.8 months in April.  Months of inventory are now back to its highest levels since June of last year.

Existing home sales eased 2.2% from April levels to 5,660,000 units.  Existing single-family home sales declined 1.6% from last month to 4,980,000 units while existing condo and co-op sales fell 6.8% from April levels to 680,000 units.  Existing home sales are still up 19.2% from the same year-ago period and have now recorded year-over-year increases in 11 consecutive months.

Median existing home prices in May increased again to their highest level since July 2009.  The median sales price for an existing home increased to $179,600 from a revised $172,300 in April.  Median existing home prices are up 2.75% from May of last year.  This is the second straight month that existing home prices have recorded a year-over-year increase.

Existing home inventory dropped in May following the expiration of the federal homebuyer tax credit which helped boost sales and reduce the supply of existing homes on the market.  Existing home inventory declined 3.4% from the previous month to 3,892,000 units.  This was the first time in four months that existing home inventory posted a monthly decline.  Existing home inventory levels are still 1.1% higher than they were this time last year.

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