National Housing Market Outlook

Tax Credit Less Effective This Time Around

April 20, 2010
Sales boomed last Fall as the tax credit expiration approached in November. With the new deadline approaching, sales have improved this Spring, but not nearly as much.
The pending home sales index through February, which is shown here, shows the slight improvement over January, but is nowhere near as robust as last Fall. Our proprietary monthly survey and our weekly calls to our home building clients have confirmed that March and April were not good months. Not only do sales remain low, but also the traffic of interested shoppers is not improving.
The Fed has declared that they are done buying mortgages from the GSEs, elected officials have declared that there will be no more tax credit extension, and recent loan modification clarifications have cleared the way for the mortgage servicers to increase their foreclosure activity, which will result in more distressed sales.
Despite the tremendous affordability that exists, we remain very cautious about the back half of 2010 because consumers just aren’t showing much interest in home buying right now.
Economic Growth………………………………………………………………….D+
Spending remains high and income improved, but the unemployment level remains very high. Overall economic growth improved slightly this month, and the results for our economic growth metrics were generally positive. The revised fourth quarter GDP growth rate increased to 5.6%. The pace of job losses eased this month, and the number of mass layoff events is plummeting, but employment has still declined 1.7% year over year. The unemployment rate was flat this month at 9.7%, but the broader measure of unemployment, the U-6, increased to 16.9%. The length of unemployment in the labor force increased to 31.2 weeks this month, reaching a record high level since the BLS began tracking the statistic in 1948. Personal income improved and has returned to positive year-over-year growth for the second time since December 2008, increasing by 2.0%. The CPI (all items) increased to 2.3% from one year ago, while the Core CPI (minus food and energy) dropped to 1.1%.
Leading Indicators…………………………………………………………………C+
Overall leading indicators held relatively steady this month, but several individual metrics actually improved. The Leading Economic Index has increased for the past eleven consecutive months. The ECRI Leading Index – an indicator of future U.S. growth – increased 13.9% year-over-year, and has experienced positive year-over-year growth for the past 10 months. Stocks improved once again in March, and all four major indices have now experienced large positive year-over-year growth, ranging from +43% to +57%. The S&P Homebuilding Index also improved this month. The spread between corporate bonds and the 10-year treasury declined in March, falling to 1.48 bps and is well below the peak of nearly 270 bps in March 2009 as Wall Street has become less worried about businesses failing over the past year. Since the 10-year treasury is seen as a risk-free investment, the spread between corporate bonds and the 10-year treasury displays the perceived risk of investing in corporate bonds. According to the 1st quarter CEO Confidence Index, CEOs are now much more confident about the economy. Business credit availability remains very poor, but deteriorated at a slower rate in the first quarter of 2010.
Affordability continues to be excellent this month as mortgage rates and median home prices throughout the country remain extremely low. In addition, our housing-cost-to-income ratio dropped to 25.2%, and housing affordability remains excellent compared to history. Affordability is so good that owning the median-price home is now less expensive than renting the average apartment. Household income has fallen 4.1% year-over-year to $52,389 as a result of large job losses and government furloughs. The median-home-price-to-income ratio dropped just slightly below the historical average of 3.3 this month to 3.1. The 30-year fixed mortgage rate remained flat at 4.99% by March month-end, while adjustable mortgage rates fell to 4.20%. The Fed’s overnight lending target rate remained at a range of 0.00% to 0.25%, which is the lowest level on record. The share of ARM applications increased to 5.2% by the end of March, but is still significantly less than the peak level of 35% of total applications in early 2005.
Consumer Behavior………………………………………………………………..D
Consumer behavior improved this month as the Consumer Confidence Index increased to 52.5, after dropping sharply the previous month. Consumer sentiment was flat this month at 73.6, which is well below the historical average. The credit outstanding per household has fallen 9.8% over the last year to $7,682 per household. The personal savings rate fell to 3.1%, but is down from the recent peak of 6.9% in May 2009. The Misery Index increased in March, rising to 12.0 from 11.8 the previous month. This was the result of a slight increase in the inflation rate.
Existing Home Market……………………………………………………………..D+
The existing home market worsened this month as sales volume fell, and the months of supply increased. The seasonally adjusted annual resale activity declined to 5.02 million homes in February, according to the National Association of Realtors (NAR), but has increased 7% year-over-year, albeit from historically low levels. Despite the seasonally adjusted decline, on a rolling 12-month basis sales have improved for ninth consecutive months, increasing 0.4% this month and 6.9% year-over-year. The federal tax credit was set to expire on November 30th until it was ultimately extended to Spring 2010. This led to a surge of closings in November, but sales have dropped over the past three months. The national median price of an existing single-family home ticked up to $164,300 in February from $163,600 the previous month. However, the median price has still declined 2.1% year-over-year. Year-over-year losses for the Case-Shiller national index, which tracks paired sales, eased once again in the fourth quarter. The number of unsold homes increased to 8.6 months of supply, which is above the historical average. Pending home sales experienced an increase this month after falling the previous month. As of the fourth quarter, 24% of all homes with a mortgage throughout the U.S. were worth less than the balance of the mortgage.
New Home Market……………………………………………………………………C-
Overall, the new home market worsened slightly this month as sales activity decreased and new home inventory increased. Builder confidence improved to 19 from 15 last month, yet remains very low, indicating that the Spring selling season might be slow. The seasonally adjusted new home sales volume fell to 308,000 transactions, declining 13% year-over-year, but the sample size used by the Census Bureau to calculate this metric is extremely small and the confidence interval is quite large. The rolling 12-month total also fell this month to 367,000 transactions, which is also the lowest level since at least 1963. The median single-family new home price increased to $220,500 and has climbed 5.2% year-over-year. The inventory of unsold homes increased again this month to 9.2 months of supply, and the volume of new homes for sale dropped slightly to 233,000 homes.
Repairs and Remodeling…………………………………………………………..D-
Conditions for residential repairs and remodeling were mixed this month, with some metrics increasing and others decreasing. Homeowner improvement activity declined 5.4% year-over-year but was slightly better than last quarter’s rate. The Remodeling Market Index decreased in the fourth quarter to 36.4 after increasing for the previous few quarters. In addition, the index remains well below the historical average of 50. Residential construction has fallen 4% year-over-year as of February, but the pace of decline has eased.
Housing Supply………………………………………………………………………..F
Housing supply was mixed this month, as new home completions increased but both permits and starts decreased. Total completions climbed to 700,000 units this month, but has declined 15% year-over-year. However, seasonally adjusted new home starts decreased in February, due to declines in both single-family and multifamily starts. Seasonally adjusted total permits decreased to 612,000 this month, which is a 2% month-over-month decline, but permits have increased 11% year-over-year. Although vacancy rates in the U.S. have improved in recent quarters, the majority of the U.S. remains oversupplied compared to history. Just six states in the U.S. are currently undersupplied – Oklahoma, Wyoming, New Mexico, North Dakota, South Dakota and Alaska. The homeowner vacancy rate increased again in the fourth quarter of 2009 to 2.7%, which is up from 2.6% in the third quarter.
Data Current Through April 15, 2010
Overall Grade
Economic Growth
These are the best indicators of how the economy is currently performing.
Real GDP (annual rate) 5.6% C+
Employment Growth (1-year Change)
- Non-ag Payroll, NSA -2,249,000 D+
Employment Growth Rate
- Non-ag Payroll, NSA -1.7% D+
Unemployment Rate 9.7% F
Average Length of Unemployment (Weeks) 31.2
Median Length of Unemployment (Weeks) 20.0
% of Labor Force Unemployed 27 weeks and over 4.3%
U.S. Initial Jobless Claims 442,000
Mass Layoff Events, SA (YOY % Change) 0.0% C
Productivity 6.9% B-
Retail Sales 7.6% B
Capacity Utilization 72.7% D-
Core CPI 1.1% A
Full CPI 2.3% C
Personal Income Growth, nominal 2.0% D
Federal Deficit (last 12 mos., $mil curr.) -$1,357,477 F
U.S. Immigration as a % of Total Population 0.4%
Total Population Growth 1.0%
Total Households 111,711,000
- Growth Rate 0.9% D
Owned Households 75,038,000
- Growth Rate 0.4% D
Rented Households 36,673,000
- Growth Rate 2.0% C+
Leading Indicators
These have all proven to be predictable early indicators of the direction of economic growth.
Leading Econ. Index (Ann. Growth Rate Last 6 Mos.) 8.9% B-
ECRI Leading Index 13.9% B
Manpower Net Employment Outlook 5% D
U.S. Vistage CEO Confidence Index 88%
CEO Economic Outlook Survey 89%
U.S. Average Hours Worked per Week 33.3
Temporary Employed Workers 8.9% C
Corporate Profit Growth (pre-tax) 30.6% B
Corporate Bond Spread (Corp Bond vs. 10-Yr Tres.) 148.0%
Capital Goods New Orders 7.9% B-
Money Supply - M2 0.0% D+
Interest Rate Spread
10-year Treasury 3.79%
2-year Treasury 1.05%
Interest Rate Spread 2.74% A-
3-month LIBOR 0.27%
3-month Treasury 0.15%
TED Spread 0.12% B+
Stock Market (Return over last 12 months)
Dow Jones 43% B-
S&P 500 47% A
Wilshire 5000 50% A+
S&P Super Homebuilding 40% B-
Tougher Standards on Business Loans - Large Firms -6% B
Tougher Standards on Business Loans - Small Firms 4% C+
Crude Oil Price (Current $) $81.24 D
ISM Manufacturing Index 59.6 B-
ISM Non-Manufacturing Business Activity Index 60.0 B-
These statistics are probably the most important indicators of short-term housing market performance.
Conforming Mortgage Rates (contract rate; an additional 0.6 - 1.0 points are also paid up front by the borrower)
JBREC Affordability Index 0.1 A+
US Median Home Payment / Income Ratio 25.2%
US Median Home Price / Income Ratio 3.1 B-
Mortgage Rates, Fixed 4.99% A+
Mortgage Rates, Adjustable 4.20% A-
Fixed/Adjustable Spread 0.79% D
Fixed/10-year Spread 1.20% D
Fed Funds Rate 0.16%
Percentage of Adjust. Loans 5.2% A-
Equity/Owned Home (Current $) $84,127 D-
Debt % in Home (LTV) - Homes with Mortgages 85.1% F
Median Household Income $52,389
- Growth Rate, nominal -4.1% F
Consumer Behavior
Consumer attitudes correlate well with short-term housing sales performance. Consumer income growth, debt levels and job prospects affect the long-term outlook for housing sales.
Consumer Confidence Index 52.5 D-
Consumer Sentiment Index 73.6 D+
Consumer Comfort Index -45.3 F
Revolving Cons. Credit per Household $7,682
- Growth Rate -9.8% A+
Personal Savings Rate 3.1% D+
U.S. Net Worth Growth Rate 5.4% C
Financial Obligation Ratio 17.5% C-
Misery Index (Unemployment + Inflation) 12.01 C-
Existing Home Market
Sales volumes correlate well with the Housing Cycle calculations, and boost the trade up New Home sales market.
S&P/Case-Shiller® U.S. Price Index (YOY % Change) -2.5% D+
NAR Single-Family Median Home Price $164,300
NAR Single-Family Annual Price Appreciation -2.1% D+
Freddie Mac Annual Price Appreciation -4.3% F
Annual Sales Volume, SA 5,020,000 B-
Existing Home Inventory for Sale, SA 3,589,000 D
Months Supply of Unsold Homes, SA 8.6 C-
Purchase Mort. App. Index, SA 275.0 C
Pending Home Sales Index, SA 97.6 D+
Homeownership Rate 67.2% B
New Home Market
High appreciation and low inventory would mean an excellent short-term outlook for the new home industry.
Housing Market Index 19 F
Multifamily Condo Market Index 12 F
Median Price, NSA $220,500
Annual Appreciation Rate 5.2% C
Constant Quality Price Index (YOY % Change) 0.2% D+
Sales Volume, SA 308,000 F
New Home Inventory for Sale, NSA 233,000 B+
Months Supply of Unsold Homes, SA 9.2 B
Months of Homes Completed, SA 3.8 B
Months of Homes Under Const., SA 4.0 C+
Months of Homes Not Started, SA 1.4 B
Repairs and Remodeling
High remodeling levels are good for the economy and are closely tied to consumer confidence.
Homeowner Improvement Activity (YOY % Change) -5.4% D
Remodeling Market Index - Current 36.4 D
Remodeling Market Index - Future Expectations 31.4 D
Private Residential Construction (YOY % Change) -3.8% C-
Residential Investment as % of GDP (nominal) 2.5% F
Housing Supply
High construction levels are good for the economy. However, if new supply exceeds demand, prices could fall.
New Housing Units Completed, SA 700,000 F
Single-Family Starts, SA 499,000 F
Multifamily Starts, SA 76,000 F
Total Starts, SA 575,000 F
Single-Family Permits, SA 503,000 F
Multifamily Permits, SA 109,000 F
Total Permits, SA 612,000 F
Manuf. Housing Placements, SA 47,000 F
Total Supply, SA 659,000 F
Total Housing Stock 130,587,000
Homeowner Vacancy Rate 2.7% F
SA stands for Seasonally Adjusted Annual Rate. NSA stands for Not Seasonally Adjusted.
* The best 15% ever are "A" scores, the average is a "C", and the worst 15% ever are "F" scores, with distributions throughout.

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