While July new home data is looking pretty dismal, we’ve been picking out some trends developing that could suggest which segments of the market we should be focused on for signs of an eventual recovery.  Our data feature this week, courtesy of Housing IntelligencePro, segments new home sales by price range, and we went back to 2005 to see at what point along the cycle each category peaked.   An interesting but not entirely surprising trend emerged, with the low end peaking first in June 2005, while volume in the top category didn’t peak until over 2 years later in August 2007, well after the housing downturn had already begun.

There are certainly a number of reasons for this, but most centrally the trend is that sales volume trends tend to unfold from the bottom up.  A look at sales volumes for the first six months of 2010 versus the first six months of 2009 suggests that trend is likely to happen in recovery as well.  There are numerous lessons here, but our key take away today is to keep an eye on lower end price categories for recoveries in sales volume.  While the ugly July data suggests we’ll be dragging along for awhile, when a true recovery in housing arrives, it is likely to start from the bottom up.

In broader economic news, key data released this past week had a sobering effect on financial markets.  GDP estimates for the second quarter were revised lower, reinforcing the belief that economic growth will continue to slow in the second half of the year.  Consumer confidence increased slightly in August following two consecutive months of declines but remains historically low and is lower than it was this time last year.  Weaker consumer confidence will cause a slowdown in consumer spending and add even more pressure to economic growth.

Home sales are unlikely to stage any significant rebound in the coming months given flagging consumer confidence figures and the uncertainty behind the future of the economy.  Declines in the sales data will even exacerbated even more by the comparison to the elevated level of sales activity last fall/winter when the original homebuyer tax credit was set to expire and spurred an increase in activity before it was subsequently expanded and extended.  First-time unemployment claims remain stubbornly high which indicates that labor market conditions have not yet stabilized.  Be on the lookout for August employment data tomorrow morning to give us more detail on the direction the job market is heading.

The Economy
First-time unemployment claims this past week declined for the second straight week.  Initial jobless claims fell by 6,000 to 472,000 in the week ended August 28th.  Due to negative revisions, initial jobless claims are only marginally better than they were last week.  The U.S. labor market remains weak and high levels of first-time unemployment claims will drag on a recovery for the job market.

After declining for two consecutive months, the consumer confidence index rebounded in August.  The consumer confidence index increased to a reading of 53.5 in August from a revised July figure of 51.0.  The number of people surveyed that plan to buy a home within the next 6 months increased to 2.0% from 1.9% while the portion that plans to buy a new home increased to 0.4% from 0.3% in the previous month.

Preliminary estimates for second quarter gross domestic product showed the economy expanding slower than advance estimates had suggested.  The U.S. economy grew 1.6% during the second quarter which is weaker than the 2.4% pace in the advance report. 

Estimates for economic growth in the second half and 2011 continue to be revised downward which exhibits the weakening state of the current economy.  However, this still marks the fourth straight quarter that the U.S. economy has expanded and further solidifies the notion that the recession is over.  Downward revisions in business spending along with a drop in export activity and an increase in import activity resulted in slower growth.

Housing Market
Following two straight months of declines after the expiration of the federal homebuyer tax credit in April, the National Association of Realtors’ Pending Home Sales Index recovered slightly in July.  The pending home sales index rebounded 5.2% to a reading of 79.4 in July from a downwardly revised June figure of 75.5.  The index remains significantly lower than it was this time last year, down 19.1% from a reading of 98.1 in July 2009.

National average mortgage rates declined from the previous week to a new all-time low of 4.32% in the latest Primary Mortgage Market Survey released weekly by Freddie Mac on September 2nd.  This is the seventh straight week that mortgage rates have set new record lows.  The average rate on a 30-year fixed mortgage has not recorded an increase in the past 11 weeks.

In the week ending August 27th, the MBA’s seasonally-adjusted purchase index increased 1.82% from the previous week but was down 37.46% compared to the same time last year.  This is the second straight week that the purchase index has increased.  The purchase index has also recorded weekly gains in six out of the past seven weeks.  Despite recent gains, the index remains near its lowest levels in nearly 14 years.

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