HWMI Key Indicator Alert--Feb. 25

Housing starts in January posted a slight 0.8% gain, rebounding from fresh lows in December. The NAHB housing market index also showed some positive signs as builder sentiment edged upward for the second straight month. Buyer traffic surged in the past month lower mortgage rates coupled with favorable prices may have started to spark interest in home-buying again. Although some of the data may be encouraging, it is still too soon to declare the bottom has been reached. Building permits continued to fall last month and we'll have to wait for new and existing home sales figures later this month to get a better idea as to whether the market is showing any signs of stabilization.

Volatility continued in the stock market as negative economic data along with all-time high crude prices have equities in a tug of war. Crude set a new all-time high this week while also closing above the $100/barrel mark for two consecutive days. Talks of an OPEC production cut sent oil prices surging to record levels. Prices have since given up some gains and ended trading on Friday at slightly under $99/barrel. Recent consumer price data also rekindled concerns of inflation as higher energy and food prices may start to seep into core prices. It will be important to watch upcoming economic reports to get a better gauge of the current environment along with getting a since on what Fed actions may be at their scheduled rate meeting next month.

Housing starts in January rebounded slightly off record lows in December. Total U.S. housing starts increased 0.8% from the previous month as strength in multi-family building activity helped to offset continued weakness in the single-family segment. Single-family starts fell 5.2% from December while multi-family starts jumped 17.6%. Building permits, however, continued to fall as total issuances dropped 3.0% with single-family permit issuances posting declines of 4.1% from the previous month.

Leading economic indicators also point towards slower growth and suggest that a risk of recession has increased in recent months. Leading indicators in January fell for the fourth consecutive month. The leading index now stands at 135.80, down from a downwardly revised December figure of 136.0. The leading index is now at its lowest levels since September 2005.

Consumer prices in January inched up as higher food and energy prices reignite concerns about inflation. The CPI increased 0.4% on a seasonally-adjusted basis in January while core prices posted a 0.3% increase. Core prices have now increased 2.5% in the past year. The annual change in core prices is the highest its been since March of last year and while core inflation is still at relatively comfortable levels, increased energy prices may start to bleed over into core prices.

National average mortgage rates jumped to 6.04% in the latest Primary Mortgage Market Survey released weekly by Freddie Mac on February 21st. Rates are now back to its highest levels since the year started. In the week ending February 15th, the MBA’s seasonally-adjusted Purchase Index plunged to 357.6 from 403.9 in the previous week. This is the lowest reading for the index since April 2003. The latest figure reflects an 11.46 percent drop from last week and a 6.24 percent decline from the same period last year. The drop in overall mortgage activity is due to significant declines in both refinance and purchase activity.

Both the new and existing homes market showed further weakness in December signaling that a bottom has not yet been reached for the housing market. New home sales fell 4.7% in December to a seasonally-adjusted 604,000 homes, down from a downwardly revised November figure of 634,000. New home sales are now at their slowest annual pace since February 1995. At the current sales pace, there are 9.6 months of new homes supply on the market. 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 494,000 which are the lowest it’s been since October 2005. Builders dropping prices did not help sales in December as a 10.9% declined did not help to increase sales. The median price for a new home is now at $219,200 while December’s year-over-year decline in prices is the largest drop since 1970.

After increasing slightly last month, existing home sales reverted back to a slower pace as annualized sales of existing homes fell to 4.89 million units. December’s annualized pace is the slowest since August 1998. Sales of existing homes are down 22.0 % from the 6.27 million units in December 2006. Median existing home prices in December fell a slight 0.14% to $208,400. Inventory of existing homes fell for the second straight month to 9.6 months of inventory, while the number of existing homes for sale declined 7.4% to 3.905 million units.