While the pace of economic recovery remains uncertain in many areas, there still remain pockets of strength in a number of local housing markets across the country.  Our data feature this week provides some insight on which regions are going to perform the best going forward.  According to the 2011 Market Health report, 6 out of the 20 top healthiest housing markets in the country are in the state of Texas.  In January, the Lone Star State boasted employment growth that was more than double the national growth rate while its unemployment rate was also noticeably lower.  Out of the 6 Texas metropolitan areas in the top-20, 5 had stronger job growth rates than the U.S. as a whole while all 6 had lower unemployment rates.

While the pace of economic recovery remains uncertain in many areas, there still remain pockets of strength in a number of local housing markets across the country.  Our data feature this week provides some insight on which regions are going to perform the best going forward.  According to the 2011 Market Health report, 6 out of the 20 top healthiest housing markets in the country are in the state of Texas.  In January, the Lone Star State boasted employment growth that was more than double the national growth rate while its unemployment rate was also noticeably lower.  Out of the 6 Texas metropolitan areas in the top-20, 5 had stronger job growth rates than the U.S. as a whole while all 6 had lower unemployment rates.

After some encouraging news to begin the year, the residential construction market got a rude awakening this week when February housing starts and building permits data were released.  Construction activity plunged in February to levels that were just slightly higher than all-time record lows while a drop in building permit activity to all-time low levels suggests that residential construction in the coming months will remain lackluster.  This time, there wasn’t any inclement weather to blame but merely the fact that demand for new homes continue to be restrained due to rising foreclosures and oversupply in the existing homes market.  Builders remain cautious to avoid over-saturating the market with new homes but a continued improvement in the U.S. labor market and lower mortgage rates this past month helped slightly improve builder confidence in March.  The National Association of Homebuilders’ Housing Market Index in March rose one point to its highest levels since May 2010.

In broader economic news, another rise in leading economic indicators pointed towards continued growth in the U.S. economy for the months ahead.  The leading index rose for the 8th consecutive month with gains driven by a drop in first-time jobless claims and a rise in consumer expectations.  Turmoil in Libya have kept oil prices elevated thus raising the fear of inflation.  Recent data on both consumer and producer prices have shown the effects of higher energy costs on overall prices.  Headline consumer inflation jumped a seasonally-adjusted 0.5% in February while posting a 2.1% increase from year-ago levels.  Despite the recent rise in prices, the Fed kept their target Fed Funds rate unchanged at their most recent meeting this past week.  The Fed acknowledged a rise in commodity and oil prices but maintained that underlying inflation remains well-contained.

The Economy
The leading index increased again in February to a reading of 113.4 which is a 0.90 point increase from January levels.  The index is up 4.30 points from its levels six months ago when it stood at 109.1 in August.  This is the eighth consecutive month that the leading index has increased.  Gains this month were fueled by a significant drop in initial unemployment claims while the index for consumer expectations and stocks posted noticeable increases. The increase in the leading index suggests that economic growth will remain healthy in the months ahead. 

Eight out of the ten components recorded increases compared to the previous month and compared to its levels six months ago.  The only two indicators to post declines for those two time periods were manufacturers’ orders for capital goods and building permits.  The continued downward trend in first-time unemployment claims has been a large positive catalyst for the leading index over the past six months.

The consumer price index increased in February due to significant increases in energy and transportation.  The consumer price index jumped 0.5% from the previous month on both a non-seasonally adjusted basis and seasonally-adjusted basis. This is the second straight month that headline inflation has posted a 0.5% gain on a non-seasonally-adjusted basis. The 0.5% monthly rise on a non-seasonally adjusted basis is the largest one-month increase in headline consumer inflation since June 2009.

The core-CPI, which excludes food and energy prices, increased 0.4% compared to January levels on a non-seasonally adjusted basis and a 0.3% increase on a seasonally-adjusted basis. 

On an unadjusted basis, headline CPI increased 2.1% from its year ago levels while core CPI increased 1.1% year-over-year in February. This is the largest annual increase for any month in headline consumer prices since April 2010 and the largest annual increase in core consumer prices for any month since March 2010.

First-time unemployment claims dropped by 16,000 to a seasonally-adjusted 385,000 in the week ended March 12th from an upwardly revised figure of 401,000 last week.  Initial jobless claims have trended down and have been hovering around the 400,000 mark in recent weeks.  This week’s decline suggests that labor market conditions should continue to improve going forward.

Housing Market
Housing starts in the U.S. plunged in February, nullifying better-than-expected figures for construction activity in January.  Housing starts fell 22.5% to a seasonally-adjusted annual rate of 479,000 units.  Construction activity is just slightly above the all-time record low of 477,000 seasonally-adjusted annual units recorded in April 2009.  Single-family starts dropped 11.8% from the previous month to a seasonally-adjusted annual rate of 375,000 units while multi-family starts plunged 46% from January to a seasonally-adjusted annual rate of 104,000 units.

Building permits also fell in February which suggests that construction activity in the months ahead will remain lackluster.  Building permit activity fell 8.2% from January levels to a seasonally-adjusted annual pace of 517,000 units.  This is an all-time record low for building permit activity.  Single-family issuances dropped 9.3% to a seasonally-adjusted annual rate of 382,000 units while the multi-family issuances declined 4.9% to a seasonally adjusted annual rate of 135,000 units.

A slight decline in mortgage rates along with improving labor market conditions helped increase builder confidence in March. The National Association of Homebuilders' housing market index increased one point from the previous month to a reading of 17. This is the highest the housing market index has been since May 2010. The housing market index has not recorded a monthly decline in 7 months.

National average mortgage declined from the previous week to 4.76% in the latest Primary Mortgage Market Survey released weekly by Freddie Mac on March 17th.  This is the fourth straight week that mortgage rates have averaged under 5.0%.  Rates have also recorded declines in four out of the past five weeks.

In the week ending March 11th, the MBA’s seasonally-adjusted purchase index declined 4.01% from the previous week and was down 15.76% compared to the same time last year.  Purchase applications eased back this week after surging in the previous week to record its largest one-week gain since November.

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