Naples: Florida: Market Rollercoaster

After the DJIA reached a new milestone closing above the 14,000 level mark for the first time earlier this month, equities have since declined significantly due to weakening conditions in the housing market.

Continued declines in the new and existing home markets, ongoing worries in the sub-prime mortgage fallout, and now new concerns over defaults on prime loans has sent shockwaves through the market. Even strong advance estimates for second quarter economic growth didn’t help to brighten the mood.

Negative sentiment, tighter lending standards, inflated inventories, and steadily rising rates are amongst the major issues currently plaguing the housing market. The dismal conditions in the current housing environment also pushed the NAHB/Wells Fargo housing market index lower in July to a reading of 24 which is the third lowest reading ever recorded for the index.

It is also the fifth straight month that homebuilders’ confidence has declined and the lowest reading for the index since January 1991. The 7.5% decline in building permits last month showed the cautious nature that most builders are moving forward with today.

The Economy
Advance estimates for GDP in the second quarter showed the economy rebounding after lackluster growth in the first quarter of the year. The advance number showed second quarter growth at 3.4% compared to a revised 0.6% growth in the final estimates for the first quarter. This was the fastest pace GDP growth recorded since the first quarter of 2002.

June’s consumer inflation data showed that prices have been moderating. The Consumer Price Index in June increased only 0.2% from the previous month on both a seasonally and non-seasonally adjusted basis. This is the seventh straight month that prices have recorded month-over-month gains. The core-CPI, which economists watch as a closer indicator of inflation because it excludes often volatile food and energy prices, increased 0.1% on a non-seasonally adjusted basis from May and increased just 0.2% on a seasonally adjusted basis. On an unadjusted basis, headline CPI increased 2.7% from its year ago levels while core CPI increased 2.2% year-over-year in June. The year-over-year increase in core prices remains at its lowest levels since March of last year which helped to ease some fears on the inflation front.

U.S. housing starts rose 2.3% to a seasonally adjusted annual rate of 1.467 million units in last but are still down 19.4% from the 1.819 million units in June of last year. Building permits dropped 7.5% in June to an annualized pace of 1.406 million units and are down 25.2% compared to year-ago levels. Single-family permits fell 4.1% to 1.019 million units while multi-family (5+) issuances plummeted 14.8% to 335,000 units.

Housing Market
Both new and existing home sales continued to fall in June. New home sales fell 6.6% in June to a seasonally adjusted 834,000 homes, down from a revised May figure of 893,000. Sales for the previous three months were revised lower by 36,000 and sales last month were the weakest since March; it was also the slowest June since 2000. At the current sales pace, there are 7.8 months of new homes supply on the market. The median price for a new home continued to weaken as prices fell 1.3% from last month to $237,900.

Seasonally-adjusted sales of existing homes fell 3.8% in June to 5.75 million units. That is the lowest sales pace recorded since November 2002 and the fourth straight month that sales have declined. Sales of existing homes are down 11.4% from the 6.49 million units in June 2006. Median existing home prices showed some stabilizing as prices increased 3.32% from May to $230,100; prices are up a slight 0.35% compared to June of last year. Inventory of existing homes remained at 8.8 months supply at the current sales pace, while the number of existing homes for sale fell 4.2% to 4.196 million units.

National average mortgage rates declined slightly to 6.69% in the latest Primary Mortgage Market Survey released weekly by Freddie Mac on July 26th. Average rates are still 3 basis points lower than they were this time last year. In the week ending July 20th, the MBA’s seasonally-adjusted Purchase Index declined to 424.2 from 446.5 in the previous week. This is the second straight week purchase applications have fallen. The latest figure reflects a 4.99% decrease from last week but a 9.05% increase from the same time last year.

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Employment Growth 1,982,000 C
Unemployment Rate 4.5% A
Real GDP Growth 3.4% C+
Mortgage Rates 6.69% A+
Median Price Existing Home $230,100 F
Existing Home Sales 5,750,000 C+
Existing Home Inventory 4,196,000 D-
Existing Home Affordability 38.3% F
Median Price New Home $237,900 D
New Home Sales 834,000 D
New Home Inventory 538,000 F
New Home Affordability Ratio 39.9% D+


Source: Hanley-Wood Market Intelligence