Stern-looking Bear Market While concerns remain high due to continued declines in key housing indicators and the near collapse of one of the nation's largest investment banks, it also begs the question of whether there is an end in sight in terms of the credit debacle. It's been believed that it would take a large bank or builder to fall before all the smoke clears and while Bear Stearns did not technically go under, it was on the verge of disaster if it wasn't for a Fed bailout. Ideally this will be the last big shoe to drop, and not a sign of additional failures to come. Meanwhile, starts of single-family homes and single-family building permits both fell to their lowest levels in 17 years. Waning consumer confidence and further declines in the housing market are still major challenges for the economy to overcome before any type of stabilization or recovery will be possible.
Equity markets posted impressive gains in the holiday-shortened trading week as monetary policy moves by the Fed this week helped to infuse confidence on Wall St. The DJIA and the broader S&P 500 index both posted gains of over 3% for the while the tech-heavy Nasdaq Composite Index advanced roughly 2% during the week. The Fed has injected liquidity into the markets while dropping both their key interest rates substantially in the past week. Over the past week, the Fed has dropped their discount rate by 100 basis points to 2.5% and their target Fed Funds rate by 75 basis points to 2.25%. Crude prices also sold off to close the week at a little under $102/barrel after reaching a new all-time high of over $111/barrel earlier in the week.
The Economy Leading economic indicators continue to point towards slower growth going forward. The leading index has fallen for five consecutive months which has historically indicated that the economy is heading into a recession. The leading index now stands at 135.00, down from a January figure of 135.40. The index is also down from its levels six months ago when it was 137.10. Only four out of ten indicators posted monthly gains.
Total housing starts fell 0.6% from the previous month with single-family starts falling to their lowest levels in 17 years. Single-family starts fell 6.7% from last month to a seasonally-adjusted 707,000 units. Multifamily housing starts increased by 15% from the level seen last month and 23% above the level seen last February. Building permits also continued to fall with total issuances declining 7.8% from the previous month. Multi-family issuances fell 10.8% from last month while single-family building permits fell 6.2% to a seasonally-adjusted 639,000 units.
February consumer inflation data came in relatively tame despite rising commodity prices. The February CPI was roughly unchanged from the previous month on a seasonally-adjusted basis while the core CPI, which excludes often volatile food and energy prices, was also unchanged on a seasonally-adjusted basis. The annual change in core prices is back down to its lowest levels since November while headline consumer inflation fell to its lowest annual increase since last October. It should be noted, however, that energy prices were lower at the time this data was compiled and have since increased dramatically.
Housing Market National average mortgage rates fell 5.87% in the latest Primary Mortgage Market Survey released weekly by Freddie Mac on March 20th. Rates are now back to their lowest levels since mid-February. In the week ending March 14th, the MBA's seasonally-adjusted Purchase Index declined to 365.0 from 368.8 in the previous week. This was the first weekly decline for the purchase index in a month. The latest figure reflects 1.03% decline from last week and an 11.11% decline from the same period last year. A drop in overall mortgage activity is due to significant declines in refinance activity in the face of rising mortgage rates.
Both the new and existing homes market showed further weakness in January. New home sales fell 2.8% in January to a seasonally-adjusted 588,000 homes, down from a revised December figure of 605,000. New home sales are now at their slowest annual pace since February 1995. At the current sales pace, there are 9.9 months of new homes supply on the market which is an all-time high. Inventory levels continued to decline as builders have been scaling back production until the market stabilizes. The number of new homes for sale declined to 483,000 which is the lowest it has been since August 2005. The median price for a new home is now at $216,000 which is the lowest median prices have been since September 2004. Lower prices and mortgage rates still did not provide any relief for new home sales in January.
Annualized sales of total existing homes fell 0.4% in January to 4.89 million units. January's annualized pace is the slowest since August 1998. Sales of existing homes are down 23.4 % from the 6.38 million units in January 2007. Median existing home prices in January declined again to $201,100. Existing home prices are at their lowest levels since February 2005. Inventory of existing homes rebounded back to their highest levels since November at 4.191 million units which is a 5.5% increase from the previous month. At the current sales pace, there are 10.3 months of existing homes supply on the market.
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:
|Real GDP Growth||0.6%||D-|
|Purchase Mortgage Applications||365.0||D+|
|Median Price Existing Home||$201,100||F|
|Existing Home Sales||4,890,000||D+|
|Existing Home Inventory||4,191,000||F|
|Existing Home Affordability||55.6%||B|
|Median Price New Home||$216,000||F|
|New Home Sales||588,000||F|
|New Home Inventory||483,000||F|
|New Home Affordability Ratio||52.7%||A|