Most economic data these days point towards significantly weaker conditions in the near term, with the likelihood of a double-dip recession increasing, if one could argue we ever got out of the first one.  Especially with the recent drop in consumer confidence and the psychological effect of a faltering stock market, a contraction in economic activity may be a foregone conclusion.  Volatility on Wall Street, however, has helped push mortgage rates to all-time record lows.  Ironically after Standard & Poor’s downgrade, the “flight to safety” continues to be in U.S. Treasuries, along with precious metals.  The fixed rate on a 30-year mortgage fell to 4.15% this past week to its lowest levels in over 50 years.  Record-low mortgage rates have helped spark mortgage activity on the refinance side but have not been able to stir up purchase activity.  According to the Mortgage Bankers Association’s Purchase Index, buyer activity is at its lowest levels since July of last year.

But with mortgage rates retreating to near record-low levels again and home prices seemingly bottomed out, housing may finally be a safe place to park capital once again.  With such volatile markets worldwide, a house provides a solid tangible asset that may not appreciate rapidly, but which is not likely to decline substantially from current levels either.  Additionally, with many Americans having a newly soured attitude thanks to the housing bust, rental properties seem like an attractive option. 

Despite sluggish demand in new and existing home sales data, home prices continued to hold steady which may be a sign that prices have already hit their trough.  The National Association of Realtors reported existing home sales declined again in July but median existing home prices were relatively unchanged.  The Census Bureau reported the June new home sales also declined but median new home prices also increased.  Furthermore, data from Housing IntelligencePro also shows that the median home price on a regular resale home nationwide has increased for 3 consecutive months at the end of June while recording year-over-year gains for every month so far this year.  The data also shows that new home prices in the U.S. have increased for two straight months at the end of June and have also recorded year-over-year gains for every month so far this year.  So with the stock market lurching as a result of global economic factors, the thoroughly battered housing market may look like a comparative safe play to many.

The Economy
The leading index increased again in July to a reading of 115.8 which is a 0.60 point increase from June levels.  The index is up 3.30 points from its levels six months ago when it stood at 112.5 in January.  This is the third straight month that the leading index has increased.  A drop in initial jobless claims along with gains in the index for stocks and money supply helped fuel gains in July.  Despite the recent downward revisions to economic growth, the leading index still suggests that the economy will continue to grow in the months ahead.  Six out of the ten components were up compared to the previous month while seven out of the ten components were up compared to their levels six months ago.

The consumer price index increased in July due to higher energy, apparel, and transportation prices. All major expenditure categories recorded increases last month with the exception of recreation.  The consumer price index jumped 0.5% from last month on a seasonally adjusted basis.  Core CPI posted a 0.2% from June on a seasonally adjusted basis.  On an unadjusted basis, headline CPI increased 3.6% from its year ago levels while core CPI increased 1.8% year-over-year in July. This matches the largest annual increase in headline consumer prices since October 2008 and matches the largest annual increase in core consumer prices in any month since December 2009.

Initial jobless claims reversed its recent course and recorded a higher-than-expected increase during this past week.  First-time unemployment claims increased by 9,000 to a seasonally-adjusted figure of 408,000 in the week ended August 13th from an upwardly revised figure of 399,000 in the previous week.  Claims were at their lowest levels last week since mid-April before this past week’s increase.

Housing Market
Activity in the resale market remained weak in July.  The seasonally-adjusted annual sales rate of existing homes declined 3.5% from upwardly revised June levels to 4,670,000 units last month. This is the lowest seasonally-adjusted annual sales rate for existing homes since November.  Existing single-family home sales declined 4.0% from last month to 4,120,000 units while condo and co-op sales remained unchanged from June levels at 550,000 units.  Compared to the same time last year, existing home sales are up 21% from the 3.86 million seasonally-adjusted annual sales that were recorded in July of last year.  However, that increase is significantly overstated since it is being compared to an artificial low set last July caused by the expiration of the federal homebuyer tax credit.

Weaker demand pushed home prices slightly lower but they continue to hold up relatively well despite slower sales activity.  The median sales price of an existing home decreased to $174,000 in July from $175,600 in June.  This was the first monthly decline for median resale prices since February.  The median existing home price is 3.2% lower than the same time last year when the median price was $182,100.  Following downward revisions in June, existing home prices have now recorded eight straight months of year-over-year declines.

The decline in home prices helped offset a slight increase in mortgage rates to push the existing home affordability ratio higher in July.  Affordability based on 30-year fixed mortgage rates increased slightly to 68.6% in July from a revised reading of 68.4% last month.  This is the first time since January that the existing home affordability ratio has recorded a monthly increase.

The only positive take-away from July existing homes data was an improvement in inventory levels.  The number of existing homes for sale declined 1.7% to a preliminary 3.652 million units.  At the current sales pace, there are 9.4 months of existing home supply on the market compared to 9.2 months in June. This is the fourth straight month that months of existing home supply have increased.  It is also the most months of existing home inventory on the market since November 2010.

National average mortgage dropped from the previous week to 4.15% in the latest Primary Mortgage Market Survey released weekly by Freddie Mac on August 18th.  This is a new all-time record low for the 30-year fixed rate mortgage since it started being tracked.  This is also the third straight week rates have declined and the 26th consecutive week that the 30-year fixed rate mortgage has averaged under 5.0%.

In the week ending August 12th, the MBA’s seasonally-adjusted purchase index dropped 9.07% from the previous week and was down 1.12% compared to this same time last year.  This is the second straight week that the purchase index has declined and the lowest it has been since July of last year.  Record-low mortgage rates have helped boost refinance activity in recent books but have done nothing to spark purchase activity.
 
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