We start off 2011 with a data feature that examines the trends of Attached New Homes on a market-by-market basis, courtesy of Housing IntelligencePro.  We took MSAs that had at least 500 Attached New Home Closings in the first 10 motnhs of 2010, and came up with a list of 26 markets.  Of the market areas considered, 14 saw gains in Attached New Home Closing share over the 2005-2010 period, while 12 saw declines.  Cape Coral-Ft Myers saw the largest gain, moving from 26% Attached New Closings share in 2005 to 45% in 2010.  Meanwhile, the struggling San Diego housing market moved off its vertical for-sale development path and saw attached new home closings decline to 37% of all new home closings in 2010, a substantial fall from 65% in 2005.  Seven of the 26 market areas had Attached Closings in 2010 that captured the majority of all New Home transactions, compared to 6 in 2005 (4 of them are the same markets).  Of these, San Jose currently has the largest majority share of Attached New Home Closings with 72%, followed by Chicago with 59%.

In broader economic news, the economy and financial markets looked to kick start the New Year with some positive news.  Key data that was supposed to be market movers were an early look at retail sales figures after the holiday shopping season and December employment data.  Both failed to impress.

After a surprising surge in private-sector employment was reported in the ADP jobs report earlier in the week, expectations were high for a positive Friday data release from the Labor Department.  While the economy still added 103,000 jobs in December, it was much less than expected and far from a strong showing that would indicate a robust recovery in process.  Although the unemployment rate fell to a 19-month low, many expect it to inch back up in future months as individuals return to the labor force as the job market improves.   The economy and housing market definitely need stronger job growth for a sustainable recovery to take hold.

Home sales also trended up near the end of the year as evidenced by increases in both new and existing home sales for November, although nominal levels are still very low.  Home sales experienced volatility in 2010 in part due to a roller coaster of expiring federal tax incentives and plunging intere rates coupled with high levels of unemployment and substantial economic uncertainty.  Home sales surged to unseasonably high levels in the beginning of 2010 but dropped off significantly in the middle and late months as the government stimulus was withdrawn.  According to Census new home survey data, seasonally-adjusted new home sales hit its quickest annual pace of 414,000 units in April since September 2008 but fell to an all-time record-low of 274,000 units in August.  Demand for housing will continue to be subdued until significant improvements are seen in the labor market.  However, inventory levels for new homes are at record-lows and are positioned well for a recovery when that does happen.

The Economy
Although the U.S. economy continued to add jobs in December, the rise in payrolls was significantly less than was broadly expected.  The economy added a seasonally-adjusted 103,000 payrolls last month while the nation’s unemployment rate fell to its lowest levels since May 2009.  The U.S. unemployment rate fell to 9.4% from 9.6% in the previous month.

Jobless claims rose this past week after falling to its lowest levels in 18 months in the previous week.  First-time unemployment claims for the week ended January 1st increased by 18,000 to 409,000.  However, the trend for weekly jobless claims remain has remained on a downward trend for over the past couple of months which suggest that labor market conditions are slowly improving.

Consumer confidence decreased to a reading of 52.5 in December compared to a revised figure of 54.3 last month. This is the first monthly decline for the consumer confidence index since September. The consumer confidence index is also lower compared to the same year-ago period when the index stood at 53.6.  The present situation index declined from the previous month to a reading of 23.5 from 25.4 last month. The expectations index decreased to a reading of 71.9 from 73.6 in the previous month.  Only three out of the nine regions across the country posted a monthly increase in consumer confidence.  The number of people surveyed that plan to buy a home within the next 6 months increased to 1.8% from 1.7% while the portion that plans to buy a new home dropped to 0.2% from 0.4% last month.

Housing Market
Both new and existing home sales rebounded a bit in November.  New home sales increased 5.5% from the previous month to a seasonally-adjusted annual rate of 290,000 units in November.  New home sales activity has dropped significantly since the expiration of the federal homebuyer tax credit.  The annual sales pace in November is down 30% from April levels.  New home sales for the previous three months were revised lower by 9,000 units.   Sales activity in the new homes market have teetered up and down in the past seven months but continue to tread around the all-time low levels set in August.

Stronger demand in November helped new home prices firm up last month.  New home prices rebounded 8.0% from the previous month to $213,000 from a revised October figure of $197,200.  New home prices were coming off their lowest levels since December 2003 in October. 

Median new home prices are down 2.7% from this time last year and down 3.9% from this time two years ago. This is the second straight month that new home prices have experienced year-over-year declines.

A rebound in new home prices along with slightly higher mortgage rates pushed the new home affordability ratio off of all-time record highs.  The new home affordability ratio fell to a reading of 60.7% from a record-high of 64.1% in October.

New home inventory continued to decline in November which will lead to quicker stabilization in the new homes market when labor market conditions and overall economic conditions improve.

New home inventories declined to 197,000 units on a seasonally-adjusted basis in November.  Inventory has declined for six consecutive months and has not recorded a monthly increase in ten months.  New home inventory levels are now sitting at new all-time lows.

Existing home sales rebounded 5.6% from the previous month to 4,680,000 units in November.  Sales of existing single-family homes increased 6.7% to 4,150,000 units while condo and co-op sales dropped 1.9% from last month to 530,000 units.  Existing home sales remain significantly lower than they were this time last year, down 27.9% from November of last year when the seasonally-adjusted annual sales rate stood at 6,490,000.  However, it is important to note that sales activity during this time last year was inflated due to demand created by the expiration of the original homebuyer tax credit that was eventually expanded and extended so year-over-year comparisons may be slightly exaggerated.

Slight increases in both median existing home prices and mortgage rates pushed the existing home affordability ratio slightly lower from all-time record highs set last month.  The existing home affordability ratio declined slightly to a reading of 69.1% in November from 69.3% in October.  This is the first month since June that the existing home affordability ratio has not recorded a monthly decline.  The median existing home price increased to $170,600 in November from $170,400 in October and $170,000 during this same month last year.  This snaps a string of four consecutive months of price declines for resales.

Inventory of existing homes declined 4.0% to a preliminary 3,710,000 units from 3,863,000 units in October.  This is the third straight month that existing home inventory has declined and the lowest it has been since March.  However, October's inventory level is still 5.4% higher than the 3,521,000 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 declined from the previous week to 4.77% in the latest Primary Mortgage Market Survey released weekly by Freddie Mac on January 6th.  This is the lowest rates have been since the second week of December and the 35th straight week that 30-year fixed mortgage rates have averaged under 5.0%.

In the week ending December 31st, the MBA’s seasonally-adjusted purchase index eased 0.8% from the previous week and was down 5.8% compared to the same time last year.  However, overall mortgage application activity increased 2.3% due to an increase in refinance activity which offset declines in purchase activity. 

For market-level data and analysis please visit our website at http://www.hwmarketintelligence.com.  For more detailed information on the indicators discussed in this key indicator alert, please visit the following links: