Construction activity picked up moderately in November but remains tame by historical standards as the economy battles through a recovery.  Housing starts were still noticeably lower than they were this time last year but year-ago figures were boosted by the federal homebuyer tax credit.  Building permit activity also declined which suggests that construction activity may soften in the months ahead.  Rising mortgage rates, sluggish housing activity, and weak economic growth kept builder confidence unchanged in December as most try to decipher what the next move will be in these uncertain times.

Despite the cautious environment, there are builders that are experiencing outsized growth after the first nine months of the year.  All the top-performing builders in our data feature this week are concentrated in the South and specifically in Texas and Florida.  According to data from Housing IntelligencePro, Gehan Homes of Texas has recorded over 80% more closing activity so far this year than it did in the same period last year.  The criteria for our search required builders to have settled at least 500 homes through the first nine months of the year.  The top-five builders were all concentrated in either Texas or Florida.  The South remains the most active region for new home construction due its high levels of affordability, relatively stable local economies, and less speculative activity especially during the boom years.

In broader economic news, first-time jobless claim figures continued to slowly trend lower, which is a positive sign for the U.S. labor market.  Initial unemployment claims recently to their second-lowest figure for the year, but the improvement is still lackluster given how long the unemployment rate has been at elevated levels.  A jump in leading economic indicators for November also suggests at least some improvement in growth for the economy in the months ahead.  Stocks have continued their “Santa Clause” rally recently, with equity markets trending higher.

The Economy
The leading index increased to a reading of 112.40 in November which is a 1.20 point increase from October levels.  The index is up 2.40 points from its levels six months ago when it stood at 110.0 in May.  This is the fifth consecutive month that the leading index has increased.  This was the largest monthly increase that the leading index has recorded since March.  With the exception of building permits, every component within the leading index posted a gain last month.

Initial jobless claims fell by 3,000 in the week ended December 11th to a seasonally-adjusted 420,000.  This is the third decline in the past four weeks in first-time unemployment claims.  The weekly jobless claim number has been steadily trending lower and may be signaling better labor market conditions going forward.

The consumer price index increased moderately in November due to slightly higher food, transportation, apparel, and energy costs.  However, inflation on the consumer level continues to be well-contained and below the historical rate.  Headline consumer prices increased 0.1% from last month on a seasonally-adjusted basis while core consumer prices also increased 0.1% from the previous on a seasonally-adjusted basis.  On an unadjusted basis, headline CPI increased 1.1% from its year ago levels while core CPI increased 0.8% year-over-year in November.

Housing Market
U.S. housing starts in November increased 3.9% from the previous month to a seasonally-adjusted annual rate of 555,000 units.  However, they still remain 5.8% lower than they were this time last year.  It is a positive sign that single-family starts remained strong in November while multi-family starts showed some weakness.  Single family starts increased 6.9% from October levels to a seasonally-adjusted annual rate of 465,000 units while multi-family starts declined 9.0% to a seasonally-adjusted annual rate of 90,000 units.

Building permits declined 4.0% to seasonally-adjusted annual rate of 530,000 units in November which is the lowest it has been since April 2009.  The decline in permit activity suggests softer construction activity in the months ahead.  Significant declines in multi-family permit activity were the main reason for the drop in overall permits.  Multi-family building permit activity dropped nearly 23% in November.  Single-family permit issuances remained steady, increasing 3.0% from October levels to a seasonally-adjusted annual rate of 416,000 units.

A rise in mortgage rates and mixed economic signals put builder confidence at a standstill to end the year.  The National Association of Homebuilders' housing market index remained unchanged from the previous month at a reading of 16 in December.  The NAHB housing market index has not recorded a monthly decline in four months and remains at its highest levels since May.

National average mortgage rates increased from the previous week to 4.83% in the latest Primary Mortgage Market Survey released weekly by Freddie Mac on December 16th.  After reaching all-time record lows just five weeks ago, mortgage rates have now increased for the subsequent five consecutive weeks.  This is the highest rates have been since the middle of May.  However, mortgage rates have now averaged less than 5.0% for 32 straight weeks.

In the week ending December 10th, the MBA’s seasonally-adjusted purchase index declined 5.03% from the previous week and was still down 16.96% compared to the same time last year.  This is the first time in the past four weeks that the purchase index has declined.  However, the purchase index has recorded a reading above 200 for four consecutive weeks now.

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