Challenging Conditions Persist Negative housing news and concerns of slower economic growth may need to take a backseat in the headlines for the time-being as the record run-up in crude prices continue. Housing, financials, and the credit crunch have been the main ingredients of the current downturn but when you throw in a record-setting two-day run in crude prices at the beginning of the month, it means more trouble is likely ahead. The wrath of the housing bust is still being felt as banks and builders continue to record write-downs on their balance sheets. The current shake-up at Lehman Brothers is a prime example that problems with financials are far from over. And while it is likely that the economy will not be able to rebound significantly until housing stabilizes, continued increases in crude prices will not help the cause either.

Friday the 13th didn' t prove to be such a bad omen for stocks this month. After sliding in several trading sessions earlier last week, Wall St. rallied in the final two days of trading to end the week. And while crude ended the day trading at under $134/barrel, it is coming off a new all-time high of nearly $140/barrel set earlier in the day' s trading session. The recent jump in crude prices has also shifted the Fed' s focus back to controlling inflation. Remarks out of the Federal Reserve early last week sparked a sell-off in equities while futures markets fully-priced in a Fed rate-hike before year-end.

The Economy The U.S. economy shed jobs for the fifth straight month of the year as the national unemployment rate shot up to 5.5%. The unemployment is now at its highest level since October 2004. Total non-farm payrolls fell by 49,000 in May while the economy has shed 324,000 jobs so far this year. Non-seasonally adjusted total non-farm employment in May was just 104,000 higher than in May 2007, a sizable drop from last month's year-over-year revised gain of 404,000 and a mere fraction of the 1,660,000 jobs created over the twelve month period ending in May 2007. Currently, non-seasonally adjusted total non-farm employment shows a figure of 138,393,000, a weak 0.08% gain over May 2007.

May's consumer inflation data showed a spike in inflationary pressures as higher food and rocketing energy prices sent the CPI higher. The Consumer Price Index in May increased 0.8% from April on a non-seasonally adjusted basis and increased 0.6% on a seasonally-adjusted basis. Energy prices rocketed 4.4% last month while food prices increased 0.3%. The core-CPI, which economists watch as a closer indicator of inflation because it excludes often volatile food and energy prices, increased just 0.1% on a non-seasonally adjusted basis while increasing 0.2% on a seasonally-adjusted basis from April. On an unadjusted basis, headline CPI increased 4.2% from its year ago levels while core CPI increased 2.3% year-over-year in May.

Housing Market National average mortgage rates increased jumped to 6.32% in the latest Primary Mortgage Market Survey released weekly by Freddie Mac on June 12th. This is the third straight week that rates have increased and the highest rates have been since October 2007. In the week ending June 6th, the MBA' s seasonally-adjusted Purchase Index increased to 376.2 from 333.6 in the previous week. Purchase applications rebounded in the past week after reaching their lowest levels since February 2003 in the previous week. The latest figure reflects a 12.77 percent increase from last week but a 19.04 percent drop from the same period last year.

New and existing home sales moved in opposite directions in April. New home sales posted a rare 3.3% increase in April to a seasonally-adjusted 526,000 homes, up from a revised March figure of 509,000. This is the first time since October 2007 in which seasonally-adjusted annualized sales have posted a monthly increase. Sales for the previous three months, however, were revised lower by 30,000 units. At the current sales pace, there are 10.6 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 454,000 which is the lowest it has been since May 2005. In April, median new home prices rebounded from its lowest levels since September 2006 in March to $246,100 in April. It was also the first time since November that median new home prices recorded a year-over-year gain.

Annualized sales of total existing homes declined 1.0% in April to 4.89 million units. Sales of existing homes are down 17.5% from the 5.93 million units in April 2007. Median existing home prices in April increased for the second straight month to $202,300 from a revised $200,100 in March. The number of existing homes for sale increased jumped 10.5% to 4.552 million units in April. At the current sales pace, there are 11.2 months of existing homes supply on the market. Existing home affordability declined slightly in March due to the increase in median existing home prices.

Market Highlights:

Philadelphia, PA

240 net new home sales during April 2008 with a median minimum price of $449,975

Washington, DC-MD-VA 770 net new home sales during April 2008 with a median minimum price of $512,990

San Francisco Bay Area, CA 654 net new home sales during April 2008 with a median minimum price of $601,990

Chicago, IL-IN-WI 854 net new home sales during April 2008 with a median minimum price of $336,900

Los Angeles, CA 150 net new home sales during April 2008 with a median minimum price of $510,000

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Learn more about markets featured in this article: San Francisco, CA.