HWMI Key Indicator Alert--7/23/08

Higher Prices Worrisome Weak demand conditions and the flustering economy continued to negatively impact data in the housing markets last week. Single-family housing starts fell again in June to their lowest levels in 17 years while total housing starts increased in June due to a jump in multi-family starts. The jump in multi-family activity was driven by new construction code changes made in New York City that went into effect in July. Total permit activity also jumped in June due to the effects of the building code changes in NYC, although single-family permits declined another 3.5% in June. Slower demand and problems in the credit markets also pushed builder confidence to all-time lows in the last NAHB Housing Market Index. In July, the NAHB HMI declined for the third straight month to a record low reading of 16.

Falling crude prices have also helped push equities higher in recent weeks. Crude-oil prices dropped roughly 11% last week and continued to slide on Tuesday as concerns about Tropical Storm Dolly disrupting production in the Gulf eased. Crude closed trading on Tuesday at just under $128/barrel for August delivery. Although crude prices have dropped to hover at their lowest levels in almost seven weeks, they still remain at a high elevated level. The inflationary effect of higher food and energy prices were evident in the consumer price index last month. Elevated crude and food prices will continue to have an inflationary effect and may force the Fed to raise rates before the end of the year.

The Economy Leading economic indicators continue to suggest slower economic growth going forward. Leading indicators fell for the second straight month in June, posting a 0.10 decline from a downwardly revised May figure to a reading of 101.70. Only four out of the ten components showed monthly improvement while just three showed gains compared to the prior six-month period.

Total housing starts rebounded 9.1% in June due to a 43.9% jump in multi-family starts while single-family housing starts fell 5.3% in June. Total starts are still down 26.9% from June of last year. Single-family permit issuance decreased slightly again in June, down 3.5% from the level seen last month to a seasonally-adjusted level of just 613,000 permits issued. The number of single-family issuances in June was 40% lower than the level seen in June of 2007 and 56% lower than two years ago. Total permit issuances, however, increased 11.6% in June due to a 44.3% in multi-family (5+ units) permit issuances.

June's consumer inflation data showed a spike in inflationary pressures as higher food and rocketing energy prices sent the CPI higher. The CPI in June increased 1.1% on a seasonally-adjusted basis with energy prices surging 6.6% and food prices increasing 0.8% last month. The Core-CPI, which economists watch as a more accurate indicator of inflation because it excludes often volatile food and energy prices, increased 0.3% on a seasonally-adjusted basis in June. Headline consumer inflation jumped 5.0% in the past year which is the largest year-over-year gain since May 1991.

Housing Market National average mortgage rates declined to 6.26% in the latest Primary Mortgage Market Survey released weekly by Freddie Mac on July 17th. Rates have now posted weekly declines in two out of the past three weeks and are at their lowest levels since the beginning of June. In the week ending July 11th, the MBA's seasonally-adjusted Purchase Index declined to 359.7 from 365.8 in the previous week. The latest figure reflects a 1.67 percent decrease from last week and a 19.44 percent drop from the same period last year.

New and existing home sales moved in opposite directions again in May but it was the existing home market that showed improvement while new home sales faltered. New home sales declined in May after posting its first monthly gain since October 2007 last month. Sales fell 2.5% in May to a seasonally-adjusted 512,000 homes, down from a revised April figure of 525,000. Sales for the previous three months were also revised lower by 9,000 units. At the current sales pace, there are 10.9 months of new homes supply on the market. New home inventory declined to 450,000; the lowest it has been since May 2005. In May, median new home prices fell back to their lowest levels since March to $231,000 after posting a strong rebound in the previous month. Lower prices helped to increase the new home affordability ratio to 48.8% in May.

Annualized sales of total existing homes in May increased for the first time since February, rising 2.0% from April levels to 4,990,000 units. Sales of existing homes are still down 15.9% from the 5.93 million units in May 2007. Median existing home prices in May increased for the third straight month to $208,600 from a revised $201,200 in April. This is the highest median existing home prices have been since November 2007. The number of existing homes for sale declined 1.4% to 4.485 million units in May. At the current sales pace, there are 10.8 months of existing homes supply on the market. Existing home affordability declined for the third straight month due to increases in both mortgage rates and existing home prices in May.

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