Builders’ piece of the housing market pie is the subject of our data feature of the week, courtesy of Housing IntelligencePro.  New homes used to enjoy a 20% share of all home sales in 2006.  In a post housing-bubble world, that share has been falling, and during the first half of 2010 dropped to 10%.  With July’s inglorious home sales figures, that share slipped into single digits, offset by REO sales.  The distressed properties still being dumped onto the market, at prices well below that of traditional resales or new homes, represent an albatross around the neck of the residential construction industry.

In broader housing market news, a slew of housing data reports are on tap this week which give a fresh appraisal on the condition of the U.S. housing market.  The first piece was released on Monday which showed that builder confidence remained flat from the previous month (unfortunately at historically low levels).  The National Association of Home Builders housing market index stayed unchanged at a reading of 13 for September.  Expectations for weaker economic growth and weaker employment trends weighed on builder confidence despite mortgage rates reaching all-time record lows.

On Tuesday, the Commerce Department reported that U.S. housing starts jumped 10.5% in August.  It was the second straight month that construction activity has increased despite weaker home sales.  The reason is because the increase in building activity is coming from apartments and not in the form of single-family homebuilding.  Fewer banks are willing to finance construction projects for new home communities because of the weaker sales environment so many builders are going the rental route to keep activity moving.

On Wednesday, the Federal Housing Finance Agency house price index fell for the second straight month in July.  Prices for single-family homes declined by a seasonally-adjusted 0.5% after falling 1.2% in June.  The Mortgage Bankers Association also reported that its purchase index also declined for the second straight week and remains near its lowest levels in nearly 14 years.

On Thursday, we saw existing home sales rebound in August following July’s horrific drop.  While the increase in sales activity was a relief, existing home sales remain extremely low by historical standards.  However, it is a positive sign that existing home prices have been able to remain steady through the past several months following the expiration of the federal homebuyer tax credit when demand has just plummeted.  However, home prices do tend to lag sales performance so it will be important to keep an eye on home price fluctuations in the coming months.

On Friday, new home sales activity came in flat compared to the previous month and near all time lows.  The seasonally-adjusted annual rate of new home sales remained at 288,000 units in August which is the second-lowest figure on record.  Weaker demand continued to pressure new home prices which declined for the 3rd consecutive month to its lowest levels since December 2003.  However, record-high affordability and record-low inventory levels have the new homes market reasonably well-positioned when demand finally recovers.

The Economy
The leading index increased to a reading of 110.2 in August which is a 0.30 point increase from July levels. The index is up 2.20 points from its levels six months ago when it stood at 108.00 in February. While it is a positive sign that the leading index continues to increase, the gains have been flatter in recent months which suggests that growth going forward will be slower and more moderate. An increase in initial unemployment claims along with declines in manufacturers' orders for consumer goods and vendor performance dragged on the leading index in August.

After showing signs of improvement over the past few weeks, first-time jobless claims jumped last week.  Initial jobless claims increased by 12,000 to 465,000 in the week ended September 18th.  First-time unemployment claims remain at historically high levels and suggest weaker labor market conditions going forward.

The consumer price index increased in August due to higher prices in energy and transportation. However, inflation on the consumer level continues to be well-contained and below the historical rate.  On an unadjusted basis, headline CPI increased just 1.1% from its year ago levels while core CPI increased 0.9% year-over-year in August. This was the tamest annual increase in core consumer prices that we have on record starting from 1980.

Housing Market
New home sales in August remained unchanged from the previous month at its second-lowest seasonally-adjusted annual sales rate on record.  New home sales were flat from last month at a seasonally-adjusted annual pace of 288,000 units.  New home sales activity has dropped considerably since the expiration of the homebuyer tax credit at the end of April.  However, revisions in the August report showed that new home sales in the past three months were not as weak as previously thought.  New home sales for the previous three months were revised upward by 10,000 units.  New home sales are still down 28.9% from the same year-ago period and down 33.8% from August 2008.

Weaker sales activity continued to pressure new home prices in August.  In August, median new home prices declined to $204,700 from an upwardly revised July figure of $205,900.  This was the third straight month that new home prices have declined and the lowest they have been since December 2003.  New home prices are also 1.2% lower than they were this time last year.

However, lower prices along with falling mortgage rates have pushed new home affordability to new all-time record highs.  It is now more affordable than ever to buy a new home with about 62% of all the households across the country that could afford to purchase a new home.  Lower inventory levels along with record-high affordability will help new home sales activity rebound quicker when the economy begins to recover.  New home inventory levels are currently sitting at their lowest levels on record and have not recorded a monthly increase in seven months.  New home inventory on a seasonally-adjusted basis declined to 206,000 units in August from 209,000 units in July.

Existing home sales rebounded in August following its largest one-month drop in history last month in July.  The seasonally-adjusted annual sales rate of existing homes rebounded 7.6% from July levels to 3,840,000 units. August was the first month since April to record a monthly increase in sales activity.  Existing home sales remain significantly slower than they were this time last year, falling 19.0% from the seasonally-adjusted annual sales rate of 5,100,000 units in August of 2009.  In August, existing single-family home sales increased 7.4% from July to a seasonally-adjusted annual sales rate of 3,620,000 units while condo and co-op sales rebounded 8.5% from July levels to 510,000 units.

In August, existing home prices declined slightly for the second straight month.  The median price for an existing home declined 1.9% from the previous month to $178,600.  Despite falling demand in the past several months, it is a positive sign that existing home prices have held relatively steady. The median existing home price is still 0.8% higher than the same time last year when the median price was $177,200.

Existing home inventory levels remain at historically high and unhealthy levels.  Inventory of existing homes declined a slight 0.6% to a preliminary 3,982,000 units from 4,007,000 units in July. August's inventory level is 1.5% higher than the 3,924,000 units of inventory on the market during the same year-ago period.

U.S. housing starts increased for the second straight month in August while rebounding back to its highest levels since April.  Total housing starts jumped 10.5% from the previous month to a seasonally-adjusted annual rate of 598,000 units due to gains from both the single and multi-family segment.  Although single-family permits did increase in August, the momentum behind residential construction activity was driven by gains in multi-family building activity for the second straight month.  Single-family starts increased 4.3% from July levels while multi-family jumped 37.2%.

Building permit activity increased slightly in August as well.  Total building permits issued in August increased 1.8% from the previous month to a seasonally-adjusted annual rate of 569,000 units.  Gains in the multi-family segment helped offset slight declines in the single-family segment.  Single-family permit issuances declined 1.2% in August to a seasonally-adjusted annual rate of 401,000 units while multi-family permit issuances increased 9.8% to 168,000 units.

National average mortgage rates remained unchanged from the previous week at 4.37% in the latest Primary Mortgage Market Survey released weekly by Freddie Mac on September 23rd.  Mortgage rates remain just slightly higher than the all-time record lows set three weeks ago.

In the week ending September 17th, the MBA’s seasonally-adjusted purchase index declined a slight 3.32% from the previous week and was down 38.40% compared to the same time last year.  This is the second straight week that the purchase index has declined.  The index remains near its lowest levels in nearly 14 years.

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