No Recession Yet Housing woes haven't dampened the mood on Wall St. Lower crude prices, better than expected economic data, and another Fed rate cut pushed equities higher in the past week. The DJIA has now bounced back to close trading at above the 13,000 for the first time since the second trading session of the year. While relatively flat economic growth and continued job losses aren't pleasant, the data was stronger than most had expected. The Fed also cut their target Fed Funds rate by 1/4 point this past week to 2.0%. After reaching a record-high of roughly $120/barrel, crude prices have retreated to trade at about $116/barrel at the close on Friday. Rising crude and commodity prices will continue to put pressure on the consumer and the economy.
Housing reports for March gave no indication that the struggles in the housing market will be over any time soon. Both new and existing home sales painted a gloomy picture as new homes fell for the fifth consecutive month while posting its slowest annual sales rate since October 1991. Sales of existing homes were much of the same story with annualized sales declining 2.0% from the previous month's pace. What is most concerning is that there seems to be so little demand that multi-year highs in affordability aren't bringing buyers off the sidelines. Affordability for new homes are at their highest levels since July 2003 due to lower mortgage rates and plummeting prices while sales remain in the doldrums.
The Economy Although job losses continued in April, the contraction was more moderate than in previous months which have given the market hope that the economy may be in better shape than most had expected. Seasonally-adjusted nonfarm payrolls in April declined by only 20,000 which is far less than the 80,000 jobs per month that were shed during the first quarter. Non-seasonally adjusted total non-farm employment in April was just 381,000 higher than in April 2007.While many were expecting the economy to contract or not grow at all, advance GDP estimates for the first quarter showed economic expansion remained on pace with fourth quarter growth of last year. Advance estimates for first quarter gross domestic product remained unchanged from the final fourth quarter figure of 0.6%. While the report was soothing, it is still widely expected that growth will remain weak going well into the second quarter. Improvements in business spending offset declines in consumer spending while imports increased and exports declined.
Consumer confidence in April fell for the fourth straight month to its lowest levels since March 2003. The consumer confidence index declined to 62.3 in April from an upwardly revised 65.9 in March which represents a 3.6 point drop from the previous month.
Housing Market Sales activity in March pointed to further declines in the housing market as both new and existing home sales posted drops from the previous month's pace. New home sales plunged 8.5% in March to a seasonally-adjusted 526,000 homes, down from a revised February figure of 575,000. This is the fifth straight month that new home sales have posted declines while sales for the previous three months were revised lower by 10,000 units. New home sales are now at their slowest annual rate since October 1991. At the current sales pace, there are 11.0 months of new homes supply on the market.
The number of new homes for sale continued to decline as builders continue to scale back production. New home inventory declined to 460,000 which is the lowest it has been since July 2005. Weakness in the new homes market caused median new home prices to fall to its lowest levels since September 2006. The median price for a new home dropped 6.8% in March to $227,600. Low mortgage rates and falling new home prices in March have pushed new home affordability to its highest levels since July 2003.
Annualized sales of total existing homes declined 2.0% in March to 4.93 million units. Sales of existing homes are down 19.3% from the 6.11 million units in March 2007. Median existing home prices in March rebounded 2.6% to $200,700 compared to $195,600 in the previous month. Existing home prices were coming off their lowest levels since May 2004 last month. The number of existing homes for sale increased a slight 1.0% to 4.058 million units in March. At the current sales pace, there are 9.9 months of existing homes supply on the market. Existing home affordability declined slightly in March due to increases in both median home prices and mortgage rates.
National average mortgage rates increased slightly to 6.06% in the latest Primary Mortgage Market Survey released weekly by Freddie Mac on May 1st. Rates are back to their highest levels since mid-March and have not recorded a weekly decline since the last week of March. In the week ending April 25th, the MBA's seasonally-adjusted Purchase Index declined to 340.1 from 357.3 in the previous week. This is the third straight week that purchase applications have declined. The latest figure reflects a 4.81 percent decline from last week and a 20.41 percent drop from the same period 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:
|Real GDP Growth||0.6%||D-|
|Purchase Mortgage Applications||340.1||D|
|Median Price Existing Home||$200,700||F|
|Existing Home Sales||4,930,000||D|
|Existing Home Inventory||4,058,000||F|
|Existing Home Affordability||55.0%||B|
|Median Price New Home||$227,600||F|
|New Home Sales||526,000||F|
|New Home Inventory||460,000||F|
|New Home Affordability Ratio||49.7%||A-|