| Key Indicator Summary - Promising Signs for Housing, Employment |
| Written by Jonathan Dienhart | |
| 12.04.2009 | |
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News about the housing market has been fairly positive as of late. Pending home sales, existing home sales, and new home sales all recorded gains in October. Demand over the past several months has been driven in part by government incentives. Meanwhile, Federal Reserve purchases of long-term treasuries, agency debt and mortgage-back securities from government-sponsored enterprises have driven mortgage rates to record lows. Average 30-year fixed-rate mortgages hit its lowest levels this week since Freddie Mac started tracking the data in 1971. These factors make it a favorable time to be a homebuyer, although plenty of challenges for consumers persist. There are still many people looking for work and employers are not likely to start adding to payrolls in earnest until the latter part of next year. Mortgage rates are very low, although that may not last much longer either as the Fed campaign to purchase $1.25 trillion in mortgage-backed securities from Fannie Mae and Freddie Mac is expected to conclude at the end of the first quarter next year. The homebuyer tax credit, which will likely not be extended again, will end in April. Better than expected employment data from the Labor Department sent equity markets higher in early Friday trading; the DJIA and the broader S&P 500 index has since given back early gains to trade roughly flat at noon. While the report continued to show the economy shedding payrolls, jobs were lost at their slowest pace since the downturn began. The unemployment rate also declined to 10.0% which further suggests that economic conditions may be stabilizing. While encouraging, the November figures might turn out to be a bit optimistic given the especially weak seasonal employment conditions of a year ago that current data get compared to. The weakness in the labor market is likely to continue well into next year before we see a sustained expansion in employment. Equity markets have continued their extended rally as the positive employment and housing data in the past week have driven the Dow Jones Industrial Average to its highest levels since October of 2008. The DJIA set a 14-month high on Tuesday before giving back some gains in the past two trading sessions. Investors and central banks around the world have been buying up gold to hedge against inflation and U.S. dollar devaluation, although the yellow metal saw its first substantial correction in weeks during trading today as the dollar rebounded on speculation that rate hikes could come sooner from the Fed if the employment situation improves more quickly than estimated. The economy is surely on more solid footing than it was twelve months ago, but broader government fiscal issues will continue to be a major issue. The Economy The U.S. economy in November saw job losses at their lowest levels since this downturn began. There were 11,000 seasonally-adjusted non-farm payrolls lost in November which is the fewest since December 2007. The unemployment rate in November also posted its first monthly decline since July, unexpected dropping to 10.0% from 10.2% in October. Non-seasonally adjusted total non-farm payrolls in November were 4,659,000 jobs less than the same time last year. Preliminary estimates were revised lower for third quarter gross domestic product from advance estimates. Gross domestic product increased 2.8% in the preliminary third quarter report which is lower than the 3.5% growth in advance estimates but better than the 0.7% decline reported for the second quarter. Downward revisions to consumer and business spending along with an increase in imports in the preliminary report led to weaker GDP growth. Consumer confidence in November increased slightly from the previous month following two straight months of declines. The consumer confidence index increased to a reading of 49.5 in November from a revised October figure of 48.7. Housing Market New home sales rebounded in October after posting its first monthly decline since March in September. Seasonally-adjusted new home sales increased 6.2% from the previous month to an annual rate of 430,000 units. New home sales for the previous three months were also revised higher by 7,000 units. The seasonally-adjusted annual rate of new home sales is at its highest levels since September 2008. In October, the median new home price increased to $212,200 from an upwardly revised figure of $210,700 in September. Median new home prices are up 0.7% from the previous month but still 0.5% lower than they were this time last year. ; The median new home price has now recorded ten straight months of year-over-year declines. Competition from lower priced existing homes along with foreclosures and short sales have dragged on new home prices. In October, new home inventories declined to 240,000 from a September figure of 252,000 on a non-seasonally adjusted basis. Seasonally-adjusted inventory of unsold new homes have declined for 30 straight months to 239,000 units. Seasonally-adjusted months of new home inventory dropped to 6.7% in October which is the lowest it has been since December 2006. Existing home sales in October jumped due to the anticipated expiration of the original homebuyer tax credit. The seasonally-adjusted annual rate of total existing homes sold surged 10.1% in October to 6.1 million units. Existing single-family home sales increased 9.7% from last month to 5,330,000 units while condo and co-op sales were up 13.2% from last month to 770,000 units. Existing home sales are at their highest annual rate since March 2007. The median existing home price in October declined to $173,100 from $176,000 in September. This is the fourth straight month that existing home prices have declined and the lowest they have been since April. Existing home inventory declined for the third straight month in October, falling 3.67% to a preliminary 3,574,000 units from an upwardly revised 3,710,000 units in September. This is the lowest level of existing home inventory on the market since January 2007. Months of existing home inventory dropped significantly due to a jump in sales activity along with the drawdown in units for sale. At the current sales pace, there are 7.0 months of supply of existing homes on the market compared to 8.0 months in September. The market is approaching the 5-6 months supply of inventory level that is considered typical in a healthy housing environment. Pending home sales rose for the ninth straight month in October, according to the National Association of Realtors. ; The trade group’s Pending Home Sales Index, which is a forward-looking indicator based on sales contracts in October, increased 3.7% to a reading of 114.1. The index is at its highest levels since March 2006. National average mortgage rates declined from the previous week to 4.71% in the latest Primary Mortgage Market Survey released weekly by Freddie Mac on December 3rd. This is the fifth straight week that mortgage rates have declined and the lowest they have been since Freddie Mac started the survey in 1971. In the week ending November 27th, the MBA’s seasonally-adjusted purchase index increased 4.1% from the previous week but was still down 33.56% compared to the same time last year. While this is the second consecutive weekly gain for purchase applications, it is the steepest annual decline in the purchase index since March. 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:
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