Despite a fairly positive week in equity markets, lackluster housing data remains a lingering concern. Both housing starts and building permits fell in the month of February which is evidence that conditions in the housing market are still sluggish. Inclement weather conditions throughout the U.S. in February hindered on construction activity as housing starts fell 5.9% from the previous month to a seasonally-adjusted annual rate of 575,000 units. Building permits fell 1.6% last month to a seasonally-adjusted annual rate of 612,000 units which suggests that construction activity going forward will remain slow.

A steady flow of moderately positive economic news along with the Fed’s restated commitment to a lower interest rate environment pushed markets higher over the past week. The blue-chip Dow Jones Industrial Index rose for the past eight consecutive trading sessions although that streak is threatened with all major stock indexes drifting lower in early afternoon trading on Friday. Both the DJIA and the broader S&P 500 index reached their highest levels in 17 months this week. A drop in initial unemployment claims this past week showed the employment situation continuing to stabilize.

The inflationary environment as measured by weaker producer and consumer price data this week is seen as tame by the marketplace and in line with the Fed’s stance on lower interest rates. The board kept their target Fed Funds rate unchanged at a range of 0-0.25% in their second scheduled meeting of the year and stated that while economic conditions are improving they still vow to keep rates low for an extended period of time.

While sales activity during March and April are expected to increase, demand may fall off significantly after the homebuyer tax credit expires at the end of April and with interest rates eventually heading higher later in the year. The Fed is expected to conclude its purchase of mortgage-backed securities from Fannie and Freddie at the end of March which many anticipate will lead to interest rates rising incrementally. Slower sales activity early on in the year along with weaker construction activity sent homebuilder confidence lower in March. The NAHB Housing Market Index declined two points, and all three component indexes declined as well. The index measuring traffic of prospective buyers this month fell to its lowest levels since March 2009.

The Economy
Initial unemployment claims fell by 5,000 in the week ending March 132 to a seasonally-adjusted figure of 457,000. Jobless claims have trended lower in the past several weeks which suggest that the employment situation may finally be stabilizing. While jobs are still being lost, the pace at which they are being shed has slowed dramatically over the past several months. Meanwhile, the elevated unemployment rate is crushing weight on consumer confidence, which creates a Catch-22 of consumers reluctant to spend until job growth returns while firms are reluctant to hire until the economy improves.

The consumer price index remained relatively unchanged from the previous month due to lower energy and apparel costs offsetting increases in medical care and education and communication prices. The CPI was flat compared to January levels on both a seasonally-adjusted and non-seasonally adjusted basis. Core consumer prices, which exclude often volatile food and energy prices, increased 0.2% from January on a non-seasonally adjusted basis while increasing 0.1% from last month on a seasonally-adjusted basis.

On an unadjusted basis, headline CPI increased 2.1% from its year ago levels while core CPI increased 1.3% year-over-year in February. This was the tamest annual increase in core consumer prices since February 2004.

Leading economic indicators posted gains for the 11th consecutive month in February which suggests that stable economic performance can be expected to continue in the coming months. The leading index increased slightly to a reading of 107.6 in February compared to a figure of 107.5 in January. This month’s increase was driven by increases in manufacturers’ orders for consumer goods, vendor performance, and money supply.

While all ten components in the index increased from its levels six months ago, only three out of the ten components posted a month-over-month increase. The biggest gains came in vendor performance over this past month while a drop in the index for stocks dragged on the leading index.

Housing Market
U.S housing starts dropped 5.9% to a seasonally-adjusted annual rate of 575,000 units in February with a sharp drop in multi-family activity accounting for most of the decline. Single-family starts eased just a slight 0.6% from the previous month. Construction activity was limited due to winter storms that crippled the Northeast and South regions in February.

Building permits also fell in February which suggests that construction activity will remain slow in the coming months. Building permits fell 1.6% last month to a seasonally-adjusted annual rate of 612,000 units.

National average mortgage rates increased just slightly from the previous week to 4.96% in the latest Primary Mortgage Market Survey released weekly by Freddie Mac on March 18th. This is the third straight week that the 30-year fixed rates have averaged under 5.0%. In the week ending March 12th, the MBA’s seasonally-adjusted purchase index declined 2.34% from the previous week and was down 13.85% compared to the same time last year. Overall mortgage application activity declined 1.9% over the past week due to a slowdown in both refinance and purchase activity.

For market-level data and analysis please visit our website at http://www.hwmarketintelligence.com.