Housing data was weak on all fronts with sales and pricing in both the new and existing home markets posting declines in the first month of 2010. Although bad weather conditions may have contributed to some of the weakness, it is not good news that extraordinarily low mortgage rates and the extended homebuyer tax credit were insufficient to boost sales activity. New home sales volume hit an all-time low in January while existing home sales fell to its slowest annual pace since June. Exceptionally bad weather conditions in February throughout most of the U.S. will likely result in subdued sales activity again, which would be reflected in the data released next month. The extended federal tax credit now expires at the end April, so it’s likely we’ll see a run up in activity as we near that point, with a potential “clash-for-clunkers” type drop-off in sales activity for the month following.

Weak housing data, a rise in initial jobless claims, and concerns regarding Greece’s debt situation dragged on equity markets this past week. However, given how negative most of the economic news was this week, equity prices held up relatively well. In early afternoon trading, the broader S&P 500 index is basically flat and is down just 0.5% for the week and is on pace to end the month up 2.7%. Another rise in jobless claims yesterday shocked the markets at the opening bell with all three major indices down significantly in the morning but the market rallied to pare losses and ended the day slightly lower.

Other economic data released over the past week showed that the U.S. economy grew slightly faster than previously estimated during the fourth quarter while consumer confidence suffered a huge blow. Revised GDP estimates showed the economy grew 5.9% in the fourth quarter 2009 which was slightly better than advance estimates of 5.7% growth. Broad consensus is that the fourth quarter growth rate will likely slow substantially in coming quarters. Data from both the Conference Board and the University of Michigan/Reuters, showed a decline in consumers’ attitudes, adding to the list of challenges facing the economy in 2010.

Much of the enthusiasm from last year’s year-end rally has subsided and while the economy is surely on more solid footing a year later, continued job losses and instability in the housing market remain substantial concerns. International credit concerns in Europe may also spark another round of bailouts abroad and add to market instability.

The Economy
First-time jobless claims continued its consistent rise this past week signaling further deterioration in the nation’s employment situation. Initial unemployment claims rose by 22,000 last week to a seasonally-adjusted figure of 496,000. Unemployment claims have posted gains in six out of the eight weeks so far this year.

Preliminary estimates for fourth quarter gross domestic product showed the U.S. rebounding at a faster-than-expected pace. GDP increased at a 5.9% seasonally-adjusted annual rate in the final quarter of the year which is the fastest the economy has grown since 2003. Preliminary estimates were slightly higher than advance estimates of 5.7% growth. This was the second straight quarter that the economy has expanded which further suggests the economy has stabilized. Final GDP estimates for the third quarter showed the economy grew at a 2.2% clip. Upward revisions to gross private domestic investment and exports were the main drivers behind the increase in preliminary estimates.

The consumer confidence index dropped to a reading of 46.0 in February from a revised January figure of 56.5. This was the first monthly decline in the consumer confidence index since this past October and the lowest the index has been since April 2009. However, the consumer confidence index is up significantly from the all-time lows reached in February of last year at a reading of 25.3. Both the present situation and expectations index declines as well in February.

Housing Market
Home sales in both the new and existing home markets posted significant declines for the second straight month in January. Bad weather conditions prevented buyers to shop for homes even as mortgage rates reached near-record lows last month.

New home sales plunged 11.2% in January to a seasonally-adjusted annual pace of 309,000 units. This was the third consecutive month that new home sales volume have declined while hitting its slowest annual rate on record. New home sales for the previous three months were also revised lower by 10,000 units. Median new home prices in January dropped to $203,500 from a downwardly revised price of $215,600 in December. Prices are down 5.6% from the previous month and are 2.4% lower than they were this time last year. This is the lowest median new home prices have been since December 2003.

In January, new home inventories remained unchanged from the previous month at 233,000 units on a non-seasonally adjusted basis. The number of new homes for sale has not recorded a monthly increase since May 2007. However, seasonally-adjusted inventory of unsold homes increased for the first time in January in almost 3 years. Seasonally-adjusted new home inventory increased slightly to 234,000 units in January from 233,000 units in December. The record-low sales pace pushed months of inventory to 9.1 months which is the highest it has been since May.

Existing home sales fell for the second straight month in January to a seasonally-adjusted annual rate of 5,050,000 units. Resales have suffered two consecutive months of dramatic declines after reaching its highest levels since February 2007 in November. Existing single-family home sales fell 6.9% from last month to 4,430,000 units while existing condo and co-op sales dropped 8.1% from December levels to 620,000 units. In January, the median sales price for an existing home declined to $164,700 from a revised $170,500 in December. This is the lowest median existing home prices has been since May 2002.

Existing home inventory posted declines for the sixth consecutive month in January, easing 0.5% to a preliminary 3,265,000 units from a revised 3,283,000 units in December. This is the lowest level of existing home inventory on the market since March 2006.

National average mortgage rates increased from the previous week to 5.05% in the latest Primary Mortgage Market Survey released weekly by Freddie Mac on February 15th. This is the highest fixed-rates have averaged since the middle of January. In the week ending February 19th, the MBA’s seasonally-adjusted purchase index dropped 7.3% from the previous week and was down 21.4% compared to the same time last year. This is the lowest the purchase index has been since May 1997. Overall mortgage application activity declined 8.5% over the past week due to declines in both purchase and refinance activity.

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