While the new home market remains down from a year ago in terms of sales activity, some of the large public builders have managed to improve on their pace of sales.  Our data feature this week ranks the public builders in terms of the percentage change in closings for the first six months of 2010 versus the first six months of 2009, courtesy of Housing IntelligencePro.  Richmond American (MDC) tops the list, closing 15% more homes than they did in the first half of 2009, followed by DR Horton with +7% and MI Homes at +6%.

In broader housing news, signs of a weakening economy along with the Federal Reserve’s commitment to keep lending costs low continue to drive mortgage rates to new record-lows.  According to Freddie Mac’s Primary Mortgage Market Survey, the 30-year fixed rate mortgage declined for the fifth straight week to reach 4.42% in the week ending August 19th which is a new all-time low.

While lower rates have not translated into substantially increased sale activity for housing, they have helped make home ownership more affordable.  Refinance activity hit its highest levels last week since May 2009.  Lower housing costs will give households additional savings which ideally should translate into increased economic activity.  It should help support employment in the mortgage finance and title insurance industries in the housing market, which have been hit hard through the downturn.  And it will hopefully reduce foreclosures by bringing down financing costs low enough that defaults can be avoided.
 
However, continued weakness in residential construction activity is further evidence that lower rates are not enough to support the housing market.  Although housing starts rose last month, it was only due to an unexpected jump in multi-family building activity while the single-family segment continued to decline.  Building permit activity also declined, indicating that residential construction may be lackluster in the months to come. 

Until the employment situation improves, it will be difficult to imagine a significant rebound for the housing market.  And with initial jobless claims jumping back to their highest levels since last November this past week, any near-term relief for the U.S. labor market, and by extension the housing market, is highly unlikely.

The Economy
The leading index increased slightly to a reading of 109.8 in July which is a 0.10 point increase from June levels.  Flatter readings in the leading index over the past few months suggest that economic growth will be slowing.  Declines in building permits, stock prices, money supply, and the index for consumer expectations dragged on the leading index in July.

First-time unemployment claims this past week increased for the third consecutive week and reached its highest levels since the middle of November last year.  Initial jobless claims rose by 12,000 to 500,000 in the week ended August 14th.  The increase came as a surprise to most economists and suggests further weakness on the labor front.

The consumer price index increased in July due to higher prices in apparel, transportation, and energy.  However, inflation on the consumer level continues to be well-contained and below the historical rate.  The CPI rose 0.3% from the previous month on a seasonally adjusted basis while remaining flat on a non-seasonally adjusted basis.  The core-CPI, which economists watch as a closer indicator of inflation because it excludes often volatile food and energy prices, remained virtually flat for the fourth straight month in July on a non-seasonally adjusted basis and recorded a 0.1% increase from the previous month on a seasonally-adjusted basis.  Headline consumer inflation is up just 1.2% from this time last year while core consumer prices are up only 0.9% during that time.

Housing Market
Housing starts posted a surprising 1.7% increase to a seasonally-adjusted annual rate of 546,000 units in July.  However, the increase was driven by multi-family starts while single-family construction activity continued to struggle.  Single-family housing starts fell 4.2% from June to a seasonally-adjusted annual rate of 432,000 units while multi-family starts jumped 32.6% last month.

Permit activity also weakened in July which suggests that construction will remain sluggish going forward.  Building permits fell 3.1% in July to a seasonally-adjusted annual rate of 565,000 units.  The single-family segment eased 1.2% to a seasonally-adjusted annual rate of 416,000 units while multi-family permit activity fell 8.0% to a seasonally-adjusted annual rate of 149,000 units.

Despite record-low mortgage rates, builder confidence declined again in August due to expectations for weaker economic growth and weak employment trends which will continue to pressure housing activity going forward.  The National Association of Homebuilders' housing market index declined one point from the previous month to a reading of 13 in August.  In May, the housing market index had reached its highest level since July 2007 but has since declined for three consecutive months to reach its lowest levels since March 2009 this month.

National average mortgage rates declined from the previous week to a new all-time low of 4.42% in the latest Primary Mortgage Market Survey released weekly by Freddie Mac on August 12th.  This is the fifth straight week that mortgage rates have fallen to new record lows.  The average rate on a 30-year fixed mortgage has not recorded an increase in the past nine weeks.

In the week ending August 13th, the MBA’s seasonally-adjusted purchase index declined 3.42% from the previous week and was down 39.0% compared to the same time last year.  This is the first decline for the purchase index in the past five weeks.  The index remains near its lowest levels in almost 14 years.  The refinance share of mortgage activity increased to 81.4% from 78.1% in the previous week.  Refinance activity increased to its highest levels since May 2009.

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: