Where’s the safest place to build?  One way to answer the question is to look at how many distressed properties are selling in a particular area compared to the number of new homes.  This is not because the demographics of distressed property buyers and new home buyers are necessarily similar, they aren’t, but rather the health of the market that this ratio implies.  Distressed sales create havoc with home values, and make it hard for builders to hold the line on prices.  So naturally, areas with a relatively small share of distressed closings make for an attractive new home building environment.  In our data feature this week, courtesy of Housing IntelligencePro, we looked at MSAs with at least 500 new home closings in 2011 and compared that volume to the number of distressed property closings in the same period.  By a wide margin the leader was the active-adult mecca of The Villages in Florida, with an impressive ratio of 18 new home closings per REO closing.  Also impressive is that four of the top seven areas were all in North Carolina.  To see a sample report of data in your area, click here or on the Data Feature graphic to the right.

In other housing-related news, mortgage rates fell to a new all-time record low this past week.  This is the third straight week that rates have hit new all-time lows.  Lower rates along with stabilizing home prices, improving labor market trends, and reduced inventory levels put the housing market is in a favorable position to rebound this year.  In spite of the recent declines in housing starts and building permits, the housing market has been showing signs of stabilization and the foundations of recovery.  Most importantly, the single-family segment in both starts and permits continued to increase last month.  Homebuilder confidence also rose in January to its highest levels since June 2007, providing further evidence of a housing market recovery.  Homebuilder stocks have been on a bullish tear so far in 2012.  The SPDR exchange-traded fund for homebuilders (XHB) is up over 12% so far.

In broader economic news, the market has shrugged off the European debt crisis so far this year and focused on an improving economic picture domestically.  The December employment report showed solid job growth while the nation’s unemployment rate fell to 8.5% which is the lowest it has been since March 2009.  The University of Michigan/Reuters consumer sentiment index increased to an eight-month high which shows that improving labor market trends and rising equity prices are boosting confidence.  Although retail sales rose only 0.1% in December, which was less than expected, auto sales jumped 1.5% last month.  Excluding automobile sales, retail sales would have declined 0.2% in December which is its first decline since May 2010.  However, strong automobile sales may suggest that consumers are now confident enough to commit to big purchases.  With favorable prices and a low interest rate environment, this bodes well for the auto and housing industry.

Also, remember to join us for some of our trade shows in January.  See you next week in Las Vegas for Surfaces at the Mandalay Bay Convention Center from January 24-26 and World of Concrete from January 24-27 at the Las Vegas Convention Center.

The Economy
Initial claims for unemployment insurance plunged last week to multi-year lows following a spike in the previous week.  First-time unemployment claims dropped by 50,000 to a seasonally-adjusted figure of 352,000 in the week ended January 14th from an upwardly revised figure of 402,000 in the previous week.  This is the biggest weekly drop in more than six years and the lowest weekly claims number has been since April 2008.  The drop in first-time jobless claims is a positive sign that the labor market conditions will continue to improve going forward.

Inflation remained tame in December as the consumer price index declined for the third consecutive month on a non-seasonally adjusted basis.  CPI declined fell due to lower energy, transportation, and apparel costs.  On a seasonally-adjusted basis, CPI was flat from the previous month.  The core CPI, which economists watch as a closer indicator of inflation because it excludes often volatile food and energy prices, declined 0.1% compared to November levels on a non-seasonally adjusted basis and increased 0.1% on a seasonally-adjusted basis.  Headline inflation increased 3.0% from its year ago levels while core CPI increased 2.2% year-over-year in December.  This matches the largest annual increase in core consumer prices since October 2008.  However, the annual increase in headline consumer prices is back to its tamest level since March due to weaker energy prices which are excluded from core inflation figures.

The preliminary January reading for the Reuters/University of Michigan consumer sentiment index rose to a reading of 74.0 in January compared to 69.9 in December.  This is the highest reading for the index since May.  This is also the fifth consecutive month the index has increased.

Retail sales rose less than the previous month in December while also increasing less than most economists projected.  The Commerce Department reported that U.S. retail sales rose 0.1% in December while November retail sales were revised upward to a 0.4% increase.  Weaker sales activity at the end of the holiday shopping season raises concerns of a slowdown in consumer spending heading into the New Year.  Shoppers started off the holiday shopping season strong in late-November, sparked by big discounts offered at retailers and early opening hours after Thanksgiving.  However, activity lost steam going into the late and post-holiday shopping season.

The U.S. economy added 200,000 payrolls in December.  This marked the sixth consecutive month that the economy has added at least 100,000 jobs.  It is also the 15th consecutive month that payrolls have increased.  The private sector continued to drive job growth, adding 212,000 jobs in December.  Government was the only major sector to lose payrolls, shedding 12,000 jobs last month.

Stronger job growth continued to help push the nation’s unemployment rate lower in December.  The unemployment rate fell to 8.5% from an upwardly revised figure of 8.7% in November.  This matches the lowest unemployment rate the nation has seen since March 2009.  This is the fourth consecutive month the unemployment rate has declined.  The underemployment rate decreased to 15.2% in December from 15.6% in November.

Housing Market
U.S. housing starts in December fell 4.1% from the previous month to a seasonally-adjusted annual rate of 657,000 units due to a drop in multi-family activity.  However, single-family housing starts increased 4.4% to a seasonally-adjusted annual rate of 470,000 units.  Continued gains in the single-family segment are a positive sign for the housing market going forward.

Total building permits declined slightly in December, also due to weakness in the multi-family segment.  Building permits declined 0.1% from November to a seasonally-adjusted annual rate of 679,000 units.  Single-family building permits increased 1.8% to a seasonally-adjusted annual rate of 444,000 units while total multi-family permits fell 3.6% to a seasonally-adjusted annual rate of 235,000 units.

The National Association of Homebuilders' housing market index jumped four points in January to a reading of 25.  This is the highest the index has been since June 2007.  It is also the fourth straight month that the index has increased.  Record-low mortgage rates, improvement in the labor market, and continued economic growth domestically were the main drivers behind this month's gains.  An improving outlook in the European debt crisis and rising equity prices may have also contributed in the increase in builder confidence.

National average mortgage declined from the previous week to 3.88% with an average 0.8 points in the latest Primary Mortgage Market Survey released weekly by Freddie Mac on January 19th.  This is the third straight week that the 30-year fixed rate mortgage has reached a new all-time record low.  Rates have recorded declines for the past three consecutive weeks and six out of the past seven weeks.  Rates have now averaged under 4.5% for 25 straight weeks and have averaged under 4.0% for seven straight weeks.

In the week ending January 13th, the Mortgage Bankers Association’s seasonally-adjusted purchase index jump 10.33% from the previous week.  This is the second straight week that the purchase index has recorded healthy gains and the highest the index has been since the beginning of December.  Record-low mortgage rates have sparked mortgage application activity for both purchases and refinances.
 

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: