Overall building activity continues an upward trend for the year, helping to buoy homebuilder confidence in April as measured by the National Association of Homebuilders. Increased levels of building activity, some encouraging employment data, and further indications of an economic recovery sent the Housing Market Index, which measures homebuilder confidence, to its highest levels since September.

A large upward revision for February housing starts showed that building activity actually increased 1.1% instead of the initial 5.9% drop reported last month. Housing starts for March rose 1.6% from February levels to a seasonally-adjusted annual rate of 626,000 units; the highest level of building activity since November 2008. It is notable, however, that the increase was due to a rise in multi-family building activity while single-family starts saw another decline, offering another indication that the broader housing market still has a long way to go in terms of recovery.

A positive start to earnings season sent stocks to their highest levels this week since September 2008. Despite a larger than expected increase in unemployment claims on Thursday, major indices managed to finish higher at the end of the trading day. Earnings disappointments from Google and GE along with fraud charges filed by the SEC against Goldman Sachs on Friday sent all three major indices reeling in Friday trading. The fraud charges brought against Goldman were related to misleading investors about subprime mortgages and collateralized debt obligations (CDOs) which ultimately had a role in the financial meltdown and cost investors billions. The broader S&P 500 index is trading considerably lower in early afternoon trading on Friday, down 1.7% at 1,190.

While negative earnings announcements along with the Goldman news were the main culprits behind the market sell-off on Friday, many investors may be taking a step back after a bullish twelve-month run. At the close of trading on Thursday, the S&P 500 is up over 42% from the same period last year. The S&P was able to cross and close about the 1,200 level while the DJIA closed above the psychological 11,000 mark earlier in the week. Profit-taking may be the real reason behind the sell-off on Friday and with such bullish sentiment so far this year, it may be time to reassess where market fundamentals are and where we go from here.

The Economy
In the week ended April 10, initial unemployment claims rose to a seasonally-adjusted 484,000, well above expectations. Unemployment claims jumped 24,000 from the previous week while most economists were forecasting claims to decline. Despite some broader in improvements in the last jobs report from the Bureau of Labor Statistics, the unemployment claims figure is a reminder that all is not well in the labor market just yet.

The consumer price index increased from the previous month due to rising prices in medical care, food and beverages, and education and communication. Inflation on the consumer level is still well-contained and below the historical rate. The consumer price index increased 0.1% from the previous month on a seasonally-adjusted basis while core consumer prices, which exclude often volatile food and energy prices, remained unchanged from the previous month. On an unadjusted basis, headline CPI increased 2.3% from its year ago levels while core CPI increased 1.1% year-over-year in March. This was the tamest annual increase in core consumer prices since January 2004.

The NAHB Housing Market Index rebounded in April matching its highest levels since September. The index jumped to a reading of 19 which is a four-point increase from a reading of 15 in March. All three component indexes also reported monthly increases in April.

Housing Market
Housing starts rose 1.6% to a seasonally-adjusted annual rate of 626,000 units in March. This follows an upward revision of February figures which reflect a 1.1% increase as opposed to a 5.9% decline when they were initially reported last month. The increase in housing starts in March was mainly due to a jump in multi-family activity. Single-family starts eased 0.9% from the previous month while multi-family starts jumped almost 40%.

Building permits also rose in March which is a sign that building activity will remain robust in the coming months. Total building permits rose 7.5% to a seasonally-adjusted annual rate of 685,000 units. Permits for single-family homes rose to its highest levels since August 2008 in March. Single-family building permits increased 5.6% from the previous month to a seasonally-adjusted annual rate of 543,000 units while multi-family permits jumped 15.4% to a seasonally-adjusted annual rate of 142,000 units.

National average mortgage rates declined from the previous week to 5.07% in the latest Primary Mortgage Market Survey released weekly by Freddie Mac on April 15th. This is the first time in the past five weeks that average fixed rates have declined. In the week ending April 9th, the MBA’s seasonally-adjusted purchase index dropped 10.5% from the previous week and is down 17.5% compared to the same time last year. The purchase index experienced its steepest decline last week since December after reaching its highest levels since October in the previous week. Overall mortgage application activity fell 9.6% over the past week due to drops in both refinance and purchase activity.

For market-level data and analysis please visit our website at http://www.hwmarketintelligence.com. For more detailed information on the indicators discussed in this key indicator alert, please visit the following links: