With our 2011 Market Health Report freshly updated, this week we provide a sneak peak at the top of the ranking.  Or Market Health ranking takes into account all the important factors that contribute to a healthier housing market including unemployment rates, job and income growth, home price appreciation, and others.  Ironically, the housing market that is forecasted to perform the best in 2011 and the one that is expected to perform the worst are both in North Carolina.  Raleigh-Cary, NC recorded a Market Health Indicator reading of 86.9 which was slightly higher than the 86.5 reading by the second-place market of Austin-Round Rock, TX.  The market forecasted to perform the worst was Rocky Mount, NC with a Market Health Indicator reading of only 6.0.  The Market Health Indicator is showing more passing grades out of the 200 largest housing markets across the country than compared to the failing grades we have seen over the past three years.  However, there are still only 22 out of the top-200 housing markets that would have a grade of a C or better if they were being graded on a 100-point scale.

In broader economic news, rising oil prices continue to dictate market sentiment while employment figures released last Friday showed that the U.S. labor market continued to steadily improve.  Crude oil prices are still trading slightly north of $100/barrel which is hurting consumer sentiment and raising fears about inflation.  Any sustained increase in price levels caused by high energy costs may force the Fed’s hand to eliminate some of their economic stimulus policies.  The Fed’s target Fed Funds rate has been sitting at the 0-0.25% range since December 2008.  Non-farm farm employment increased for the fifth straight month in February which is an encouraging sign.  The economy added 192,000 non-farm payrolls last month which is the largest monthly employment gain since May 2010.  Continued improvement in the labor market will contribute to an eventual recovery for housing and the overall economy but watch for the specter of inflation from rising oil prices to possibly throw a wrench into the recovery.

The Economy
U.S. consumer sentiment fell in March due to high gas prices that are fueling concerns of inflation going forward.  The Reuters/University of Michigan consumer sentiment index dropped to a reading of 68.2 in March from 77.5 in February.  This is the largest one-month decline in the index since October 2008.

First-time unemployment claims jumped by 26,000 to a seasonally-adjusted 397,000 in the week ended March 5th.  Initial jobless claims have been under the 400,000 level in four out of the last five weeks.  Despite this week’s increase, the overall direction for initial jobless claims is still trending lower which is a positive sign for the U.S. labor market.

Total non-farm employment on a seasonally-adjusted basis in the U.S. increased by 192,000 payrolls in February.    This was the fifth consecutive month that the economy has added jobs.  It was also the largest monthly gain in payrolls since May 2010.  Payrolls were revised higher by a combined 58,000 for the previous two months which further reinforces steadier labor market conditions.

The unemployment rate in the U.S. declined for the third consecutive month in February to 8.9%.  This is the lowest the unemployment rate has been since April 2009.  The unemployment rate has shown significant improvement since November when it stood at 9.8%.

Personal incomes in January increased to $12,897.3 billion compared to a revised figure of $12,764.1 billion in December. This is the fourth straight monthly increase for personal incomes. Personal incomes are up 4.6% from $12,324.3 billion in January of last year. This is the strongest year-over-year increase for personal incomes in any month since June 2008. Personal incomes have now recorded 14 straight months of year-over-year gains.=

Consumer spending slowed in January as personal consumption expenditures increased only 0.2% from the previous month.  The personal consumption expenditures (PCE) price index, which is a leading gauge for inflation, increased 0.3% from the previous month. This is the second straight month that the PCE price index has recorded a 0.3% increase. The PCE price index excluding food and energy increased 0.1% from last month.

Housing Market
The National Association of Realtors’ Pending Home Sales Index declined 2.8% to a reading of 88.9 in January compared to a downwardly revised December figure of 91.5.  This is the second straight month that the index has declined.  It is also 1.5% lower than the 90.3 figure reported during the same month last year.

National average mortgage rates increased slightly from the previous week to 4.88% in the latest Primary Mortgage Market Survey released weekly by Freddie Mac on March 10th.  This is the third straight week that mortgage rates have averaged under 5.0%.  This is the first time rates have increased in the past four weeks.

In the week ending March 4th, the MBA’s seasonally-adjusted purchase index rebounded 12.5% from the previous week but was still down 14.29 % compared to the same time last year.  This is the largest one-week gain for the purchase index since the last week of November and the highest the purchase index has been since the beginning of the year.

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