Following two dismal months in which inclement weather hampered demand, both new and existing home sales picked up significantly in March.  Pent up demand from buyers who were unable to go home shopping due to winter storms along with the upcoming expiration of the federal homebuyer tax credit boosted existing home sales by 6.8% while new home sales surged 26.9% during the month.

New home sales posted its strongest monthly gain since 1963 in March as falling prices, historically low mortgage rates, and the upcoming expiration of the federal homebuyer tax credit brought buyers out in droves.  While the surge in activity is a positive sign, new home sales were rebounding from all-time lows in February.  Demand will likely soften again in the summer months as mortgage rates start to inch higher.  However, new home inventory is currently sitting at all-time lows which will help mitigate declines in sales activity.

Housing data will likely remain strong in April as rates stayed favorable and buyers rush to take advantage of the last month of the federal homebuyer tax credit.  A jump in purchase mortgage applications over the past week indicates that there is still a good amount of home buying activity going on.  But with only one week left before the tax credit expires, it may be a struggle for housing activity to head higher from here as the year goes on.  While a number of states have already implemented or plan to implement state-level tax credits to support their respective housing markets, the market will eventually have to find a way to support itself.  Until the employment situation improves more noticeably, performance in the housing market will likely remain sub-par at best.

The Economy
Leading economic indicators posted gains for the 12th consecutive month in March which suggests that economic conditions will continue to improve in the coming months. The leading index rose to a reading of 109.6 in March which is a 1.50 point gain from February levels. The index is up 5.40 points from its levels six months ago when it stood at 104.2 in September. This month's increase was driven by a drop in initial unemployment claims along with significant increases in building permits, vendor performance, and the index for stocks.  Seven out of the ten components in the leading index recorded gains from the previous month.

Initial jobless claims last week posted its first drop in the past three weeks.  In the week ended April 17, initial unemployment claims fell 24,000 from the previous week to 456,000.

Housing Market
New home sales jumped 26.9% in March to a seasonally-adjusted annual pace of 411,000 units.  This was the largest monthly increase in new home sales activity since 1963 while the annual pace of new home sales reached its quickest pace since July 2009.  New home sales for the previous three months were also revised higher by 47,000 units.  Median new home prices in March fell to $214,000 from a downwardly revised price of $221,600 in February.  Prices are down 3.4% from the previous month but are 4.3% higher than they were this time last year.  Median new home prices are now back to their lowest levels since August 2009.

In March, new home inventories declined from the previous month to 227,000 units on a non-seasonally adjusted basis.  Following a downward revision for February, new home inventory has now recorded 31 straight months of declines and has not recorded a monthly increase in inventory levels since May 2007.  Seasonally-adjusted inventory of unsold homes declined in March to 228,000 units.  Months of inventory posted a huge drop due to a surge in sales activity and inventory levels falling to new all-time lows.  Seasonally-adjusted months of inventory fell to 6.7 months which is the lowest it has been since December 2006.  Months of inventory are now closer to the 5-6 months of inventory that is typical in a healthy housing market.

After declining for three straight months, existing home sales rose 6.8% from February levels to 5,350,000 units.  Existing single-family home sales increased 7.3% from last month to 4,680,000 units while existing condo and co-op sales increased 3.1% from February levels to 670,000 units.  Existing home sales are up 16.1% from the same year-ago period and have now recorded year-over-year increases in nine consecutive months.   Median existing home prices in March rebounded back to their highest levels since October 2009.  The median sales price for an existing home increased to $170,700 from a revised $164,600 in February.  Median existing home prices are up a slight 0.4% from March of last year.  This is only the second time in the past 31 months that existing home prices have recorded a year-over-year increase.

Following six straight months of declines in existing home inventory from August 2009-January 2010, the supply of existing homes have now recorded gains in the past two months.  Existing home inventory increased 1.5% from the previous month to 3,584,000 units.  This is the highest level of existing home inventory on the market since September 2009.  Resale inventory likely increased in March as sellers rushed to put their homes on the market before the expiration of the federal homebuyer tax credit at the end of April.

National average mortgage rates remained unchanged from the previous week at 5.07% in the latest Primary Mortgage Market Survey released weekly by Freddie Mac on April 22nd.  The 30-year fixed mortgage rate is averaging 5.02% so far in 2010.  In the week ending April 16th, the MBA’s seasonally-adjusted purchase index rebounded 10.1% from the previous week but is still down 5.14% compared to the same time last year.  Overall mortgage application activity jumped 13.6% over the past week due to significant increases in both refinance and purchase activity.

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