All major housing indicators were weak in February, which is not a positive sign for the housing market heading into the key spring home-buying season.  Anecdotes of March home buying activity have been largely underwhelming thus far.  Last week, data releases showed that construction activity plunged to near record-lows in February while a drop in building permit activity suggested that residential construction in the coming months would also remain weak. 

In our data feature this week, we look at another excerpt from the Market Health Report, this time examining which markets are expected to have the best performance in 2011 in terms of median income growth.  Somewhat surprisingly, 4 of the top 5 areas are markets in Florida, and with the top spot going to College Station, home of Texas A&M University.  While incomes in the metro are well below the national average, they fit with the local cost of living.  Income growth is a positive indicator for housing, and is a substantial contributor to why the College Station-Bryan MSA is the 7th Healthiest Housing Market in the country.

More broadly, one may wonder at this point what housing has to do to get out of the doldrums.  Housing remains in a slump even though the economy continues to slowly grow as final fourth quarter GDP figures marked the sixth consecutive quarter of economic expansion for the U.S. economy.  Labor market conditions are also improving, albeit at a lackluster rate.  The economy added jobs for the fifth consecutive month in February while a steady downward trend in first-time jobless claims suggest that the U.S. job market should continue to slowly improve.  Unfortunately, the meager gains in jobs have simply not been sufficient to support the broader housing market as of yet.  Until we see stronger, sustained job growth across a larger portion of the country, housing will struggly to mount a real recovery.

The Economy
Final estimates for fourth quarter gross domestic product showed the economy growing faster than preliminary estimates had suggested. The U.S. economy grew 3.1% during the fourth quarter which is stronger than the 2.8% pace in the preliminary fourth quarter report but slightly weaker than the first estimate of 3.2% growth for the quarter. However, the economy still expanded at a faster pace than the 2.6% growth in the previous quarter. This marks the sixth straight quarter that the U.S. economy has expanded. Upward revisions in business spending caused GDP to be revised higher in the final report.

The Reuters/University of Michigan consumer sentiment index fell to 67.5 in March compared to a reading of 77.5 in February.  The index is now at its lowest levels since November 2009.  Rising food and energy costs along with mediocre growth put a halt to steadily rising consumer sentiment this month.

First-time unemployment claims declined by 5,000 to a seasonally-adjusted 382,000 in the week ended March 19th from an upwardly revised figure of 387,000 last week.  This is the second straight week that initial jobless claims have declined.  Initial jobless claims have trended down and have remained under the 400,000 level for two straight weeks.  The continued decline in first-time jobless claims suggest that labor market conditions will continue to improve going forward.

Housing Market
Home sales in both the new and existing home markets experienced considerable declines in February.  Slower demand pressured home prices in both segments lower.  Weaker housing data overall in the month of February suggests that housing market conditions remain fragile even as the economy and labor market slowly improve.

New home sales dropped to all-time record low levels in February.  Sales activity plunged 16.9% from the previous month in February to a seasonally-adjusted annual rate of 250,000 units mainly due to significant declines in activity in the Northeast and Midwest regions.  This is the second straight month that new home sales have recorded large declines.  However, new home sales for the previous three months were revised higher by a combined 30,000 units.

Weaker demand pressured new home prices lower again last month.  Median new home prices plunged 13.9% from the previous month to $202,100 in February.  This is the second straight month that new home prices have declined and the lowest they have been since December 2003.  New home prices are down 8.9% from this time last year and 3.6% lower than they were this time two years ago.  This was the largest year-over-year decline in new home prices for any month since July 2009.  However, lower prices helped push the new home affordability ratio higher for the second consecutive month.  The new home affordability ratio reached 61.7% in February compared to 56.3% in January.  New home affordability is just slightly lower than the all-time record highs set in October 2010.

New home inventory levels continued to decline in February to new record all-time low levels.  New home inventories declined to 185,000 units on a non-seasonally adjusted basis.  New home inventory on a non-seasonally adjusted basis has not recorded a monthly increase since May 2007.  New home inventory on a seasonally adjusted basis remained unchanged from a downwardly revised figure of 186,000 units in the previous month.

Existing home sales fell 9.6% from the previous month to a seasonally-adjusted annual rate of 4,880,000 units.  After reaching their highest levels since May 2010 in January, existing home sales in February fell back to their slowest annual pace since November.  Existing home sales are also lower than they were this time last year, down 2.8% from February 2010 when the seasonally-adjusted annual sales rate stood at 5,020,000 units.  Existing single-family home sales dropped 9.6% from last month to 4,250,000 units while condo and co-op sales fell 10% from January levels to 630,000 units.

An increase in distressed properties, which include REOs and foreclosures, along with weaker demand in regular resale activity continued to pressure existing home prices last month.  The median price of an existing home in February fell to $156,100 from a January figure of $157,900.  Existing home prices have now declined for eight straight months and are at their lowest levels since February 2002.  The median existing home price is 5.2% lower than it was this time last year when it stood at $164,600.  Despite lower prices, the existing home affordability ratio eased slightly in February due to higher mortgage rates.  The existing home affordability ratio fell to a reading of 71.1% in February from an all-time record high of 71.2% in January.

Inventory of existing homes increased 3.5% to a preliminary 3,488,000 units in February from 3,369,000 units in January.  This is the first month since August 2010 that existing home inventory levels have increased.  However, February’s inventory level is still 1.2% higher than the 3,531,000 units of inventory on the market during the same year-ago period.  Due to the slowdown in sales activity, months of inventory increased to 8.6 months in February compared to 7.5 months in January.  Months of existing home inventory is now back to its highest levels since November 2010.

National average mortgage increased from the previous week to 4.81% in the latest Primary Mortgage Market Survey released weekly by Freddie Mac on March 24th.  This is the fifth consecutive week that the 30-year fixed-rate mortgage has averaged under 5.0%.

In the week ending March 18th, the MBA’s seasonally-adjusted purchase index increased 2.73% from the previous week but was still down 15.74% compared to the same time last year.

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: