HWMI Key Indicator Alert--March 7

Shaky Economic Ground Negative news in the housing market continues to pour in. When building permits at their lowest levels since November 1991, new home sales at their slowest annual pace since February 1995, existing home sales at their slowest annualized pace since August 1998, and all-time high foreclosure rates aren't bad enough, you can now include record-low equity levels for U.S. homeowners now. The Federal Reserve reported this past week that Americans' percentage of equity in their homes fell to 47.9% in the fourth quarter. There have been plenty of bailout plans discussed by banks and the Federal Reserve in order to aide the ailing housing market but it is going to take a lot more than lower rates and government assistance to stop this sinking ship.

Further evidence that a recession may be looming was delivered today when the Labor Department reported that the economy lost jobs for the second straight month. Equities continued their sell-off due to the weak economic news as all the major stock indexes finished the week significant declines. To add insult to injury, the price of oil continued to climb to new all-time highs, reaching an intraday high of $106.54/barrel before closing at slightly above $105/barrel. The market is expecting another large rate-cut by the Fed later on this month, but increased food and energy prices may limit what actions the Fed can take in order to control inflation.

The Economy Non-farm employment fell by 63,000 in February which is the largest drop in payrolls since March 2003. January's contraction in employment was also revised higher with 22,000 payrolls lost instead of the 17,000 initially reported. Currently, non-seasonally adjusted total non-farm employment shows a figure of 136,451,000, a weak 0.60% gain over February 2007.

In January, personal incomes in the United States reached $11,932.9 billion, an increase of 0.3% from a downwardly revised $11,900.7 billion in December. On an annual basis, personal incomes increased 4.9% from January 2007. Personal incomes have increased every month since April. Personal income growth in December exhibits the slowest annual growth since December 2005.

Preliminary estimates for fourth quarter gross domestic product remained unchanged from the advance figure of 0.6%. Preliminary growth estimates for the fourth quarter are substantially slower than final estimates for third quarter growth which came in at 4.9%. It was widely expected that growth would slow due to the weak housing market and credit crunch during the quarter. After experiencing the fastest annual growth pace since the third quarter of 2003 in the previous quarter, growth has now shrunk to its slowest pace since the first quarter of 2007. Improved trade figures helped preliminary revisions although most of the major components were revised lower. Continued troubles in the financial sector along with the sluggish housing market is expected to keep growth slow going into the first half of 2008.

Housing Market National average mortgage rates fell for the first time in four weeks to 6.03% in the latest Primary Mortgage Market Survey released weekly by Freddie Mac on March 6th. In the week ending February 29th, the MBA's seasonally-adjusted Purchase Index increased slightly to 363.1 from 358.2 in the previous week. This is the second straight week the purchase index has posted slight gains. The latest figure reflects 1.37 percent increase from last week but a 10.41 percent decline from the same period last year. The 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.

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