In last week’s data feature we took a look at how the California market started out the year in terms of closings activity.  This week, with the Pacific Coast Builders Conference (PCBC) just days away at the Moscone Center in San Francisco, we decided to take a look at home prices during the first quarter for states on the Pacific coast, courtesy of data from Housing IntelligencePro.  While we found out last week that activity in the regular resale market, excluding bank-owned properties, held up the best, median home prices in the category did not follow suit.  In surprisingly consistent manner, both regular resales and distressed REO sales saw price declines compared to a year earlier in all three states.  Further, each of these states also saw an increase in median price in new home closings.  Have builders found a way to win in the west?  Based upon the weak volume, that’s probably optimistic, but resilient pricing does suggest home builders are finding ways to differentiate their products from the other offerings in the marketplace.

In broader economic news, data released this week were slightly more optimistic than recent weeks, but only by a bit.  In housing-related data, an increase in housing starts and building permits helped offset some of the gloom from the drop in builder confidence this month.  Better employment data along with an increase in leading economic indicators also offset worrisome reports regarding inflation.  Initial jobless claims continued their downward trend this week while the leading index rebounded to suggest that economic growth will continue in the months ahead.  Although inflation figures are a reason for concern, falling crude prices may ease prices going forward as the elevated levels of consumer prices may be temporary like the Fed has stated.   The forward month contract for crude fell about 2% on Friday to close trading at below $93/barrel.

The Economy
The leading index rebounded in May to a reading of 114.7 which is a 0.90 point increase from April levels.  Leading indicators recovered last month following its first monthly decline since June 2010 in April.  The leading index has recorded gains in 10 out of the past 11 months.  Broader strength across all indicators helped drive May's gains.  The only indicator in the leading index to not post a monthly increase in May was vendor performance.  A 12.8% jump in the index for consumer expectations and an 8.7% increase in building permits were the biggest positive contributors for the leading index over the past month.

First-time unemployment claims fell by 16,000 to a seasonally-adjusted 414,000 in the week ended June 11th from an upwardly revised figure of 430,000 last week.  After an unexpected increase last week, the recent drop in jobless claims reignites optimism that conditions in the U.S. labor market will continue to improve.  After a spike in April, first-time unemployment claims have been on a steady decline in the past few weeks.  However, initial jobless claims remain at elevated levels that will make it difficult for significant improvement in the job market.

The consumer price index rose again in May despite lower energy and transportation prices which have been some of the main drivers behind the increase in price levels the past several months.  Higher apparel prices were the main driver behind the increase in the consumer price index in May.  The consumer price index increased 0.5% from the previous month in May on a non-seasonally adjusted basis while increased 0.2% on a seasonally-adjusted basis.  This is the fifth consecutive month that consumer prices on a non-seasonally adjusted basis have posted a monthly increase of 0.5% or more.

The core CPI, which economists watch as a closer indicator of inflation because it excludes often volatile food and energy prices, increased 0.2% from April on a non-seasonally adjusted basis and 0.3% on a seasonally-adjusted basis.

Headline consumer prices increased 3.6% from May of last year while core consumer prices increased 1.5% year-over-year.  This is the largest increase in the consumer price index since October 2008 and the largest annual increase in core consumer prices since January 2010.

Housing Market
After a sharp decline in April, total housing starts rebounded in May but remained at sluggish levels that are well below the norm for a healthy housing market.  Housing starts in May increased 3.5% to a seasonally-adjusted annual rate of 560,000 units.  Moderate gains in both the single and multi-family segments contributed to the rebound.  Single-family housing starts rose 3.7% from last month to a seasonally-adjusted annual rate of 419,000 units while multi-family starts increased 2.9% from April to a seasonally-adjusted annual rate of 141,000 units.

Building permits, which are an indicator of future construction activity, jumped 8.7% from the previous month to a seasonally-adjusted annual rate of 612,000 units.  These are the highest levels of building permit activity since December.  Building permits in May are also 5% higher than they were this time last year and 10% higher than they were this time two years ago.  Moderate gains in the single-family segment along with a noticeable jump in the multi-family segment contributed to the rise in permit activity in May.  Single-family building permits increased 2.5% from April levels to a seasonally-adjusted annual rate of 405,000 units while multi-family permits jumped 23.2% from the previous month to a seasonally-adjusted annual rate of 207,000 units.

Homebuilder confidence in June dropped to its lowest levels since September due to weak reports recently on both the economy and the housing market.  The National Association of Homebuilders' housing market index fell to a reading of 13 from a reading of 16 in May.

National average mortgage increased slightly from the previous week to 4.50% in the latest Primary Mortgage Market Survey released weekly by Freddie Mac on June 16th.  This is the first time in the past nine weeks that the 30-year fixed rate mortgage has recorded a weekly gain.  Rates had not increased since the second week of April.  However, rates remain at historically low levels and have now averaged below 5.0% for 17 consecutive weeks.

In the week ending June 10th, the MBA’s seasonally-adjusted purchase index increased 4.48% from the previous week and increased 6.17% compared to this same time last year.  The purchase index has been teetering around the same range for the past eight weeks.  It is also the fourth straight week that the purchase index has recorded an increase from the same time last year.  Falling mortgage rates have sparked another round of refinance activity.  Refinance activity accounted for 70% of all mortgage application activity this past week which is the most it has been since the end of January.

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