There are now a number of indications that housing has fallen back into a lull since the federal homebuyer tax credit expired at the end of April.  Purchase mortgage application activity fell for five straight weeks following the expiration of the tax credit.  Starts and permit data released on Wednesday further solidified the notion as construction activity fell sharply in May.  Building permits also plunged for the second straight month which suggests that future construction is likely to slow further.  These developments along with fresh concerns regarding an economic recovery also caused homebuilder confidence to sink in June.  The National Association of Homebuilders Housing Market Index posted its largest single-month drop in June since August 2006, falling five points to a reading of 17.

In further efforts to shore up conditions in the housing market, the Senate approved a plan to extend the federal homebuyer tax credit on Wednesday.  However, the extension would only apply to the settlement date and not the date a sales agreement has been reached.  The proposal calls for the closing date to be extended to September 30 from June 30 in order to qualify for the credit although an executed agreement of sale would still have to be dated before April 30.  Therefore, while the estimated $140 million cost of the latest extension would help those who are struggling to meet the closing deadline in the typical 60-day timeframe it takes to close on a home, it will not help provide any additional stimulus to sales activity.  Mortgage lenders and title companies have been flooded with activity because buyers are rushing to close before the June 30 deadline so the extension would provide a little extra breathing room to make sure everyone who signed a contract by April 30 received the tax credit.

The Economy
Following upward revisions for April, leading economic indicators in May increased again and have not posted a monthly decline since April 2009 which suggests that economic growth can be expected to continue in the coming months. The leading index increased to a reading of 109.9 in May which is a 0.40 point gain from April levels.  Declines in building permits, stocks and vendor performance were offset by gains in the index for consumer expectations, money supply and average workweek.  Although the leading index continues to increase suggesting further growth, slower housing activity coupled with concerns in the Euro-zone may pressure the U.S. economy in the coming months.

First-time unemployment claims data this past week continues to suggest that employment conditions have yet to improve in the U.S.  Initial jobless claims increased by 12,000 in the past week to a seasonally-adjusted figure of 472,000.  Unemployment claims for the previous week were also revised higher by 4,000.  Unemployment claims have yet to show any significant downward moves which suggest national unemployment will remain high for quite some time going forward.

Renewed concerns of economic growth due to troubles in the Euro-zone along with the expiration of the home buyer tax credit dragged on builder confidence in June. After increasing for two consecutive to its highest levels since July 2007, the NAHB housing market index dropped five points in June to a reading of 17. This was the largest single-month drop in the housing market index since August 2006.  All three component indexes reported declines in June as well.

Housing Market
Total housing starts for the U.S. fell 10% from the previous month to a seasonally-adjusted annual rate of 593,000 units in May.  This is the lowest level of residential construction activity since December 2009.  Single-family starts, which make up the majority of residential construction activity, plunged 17% to a seasonally-adjusted annual rate of 468,000 units in May.

Building permit activity also dropped last month which suggests that construction activity will slower even further in the coming months.  Overall permit activity fell 5.9% in May to a seasonally-adjusted annual rate of 574,000 units.  This was the second straight month that building permits have recorded substantial declines.  Single-family permit activity dropped 10% in May to seasonally-adjusted annual rate of 438,000 units.

National average mortgage rates increased from the previous week to 4.75% in the latest Primary Mortgage Market Survey released weekly by Freddie Mac on June 17th.  Although rates have recorded slight increases in two out of the past three weeks, they remain at record-low levels.  Fixed mortgage rates are still just slightly higher than the all-time low of 4.71% set in December 2009.

In the week ending June 11th, the MBA’s seasonally-adjusted purchase index rebounded 7.27% from the previous week and was still down 31.09% compared to the same time last year.  This is the first weekly gain for the purchase index in the past six weeks.  The purchase index had declined for five consecutive weeks to its lowest levels since December 1996 before this week’s rebound.

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