Economic Highlights

MONDAY, March 21st

Existing home sales fell 9.6% in February to an annual pace of 4.88 million compared to market expectations for a smaller decline and a rate of 5.10 million. All cash transactions accounted for a record 33% of sales, distressed sales accounted for 39% while investors accounted for 19% of total sales. Existing home sales are now 2.8% below their year ago level and off 32.7% from their September 2005 record high. Inventories increased 3.5% to 3.488 million which represents an 8.6 month-supply. Prices continued to retreat given the bulk of distressed properties working through the market. The median price for an existing home fell 5.2% over the past year to $156,100. Several months of moderate gains were once again followed by a sharp decline in home sales. Details in the data series show weakness in most areas of housing as well, from pricing to inventories to sales. Nevertheless, the h housing market is expected to improve from here amid high affordability and as the economy begins creating more jobs.
TUESDAY, March 22nd

The Federal Housing Finance Agency (FHFA) purchase-only house price index declined 0.3% in January from December and is now down 3.9% from January one year ago. The index includes conforming loans only. Pricing in this portion of the housing market has been on a downward trend for the last couple of years, basically for the duration of the downturn. Broader pricing trends like those measured by the S&P/Case Shiller index also show lower house prices, but just in the last six months. Given the large inventory of foreclosed homes and weakness in housing demand home prices will continue to come under pressure this year.

WEDNESDAY, March 23rd

The MBA mortgage applications index rose 2.7% to 524.4% for the week ending March 18. Both the purchase index and the refinance index rose by the same amount last week. Despite the increase, total mortgage activity is still 11.9% below its year ago level. Demand for home financing remains weak and will turnaround on stronger job and income growth, improved credit flows and once home prices stabilize.
New home sales plummeted 16.9% in February to an all time record low annual rate of 250k. This was the slowest pace of new home sales since this data series began in 1963. Moreover, it follows a sharp decline of 9.6% in January. The regional data showing enormous declines in the Northwest and Midwest suggest that severe winter weather may have played a role in the tremendous weakness last month. New home sales are now 28.0% below their year ago level and off a stunning 82.0% from their July 2005 peak. Inventories were unchanged at a 44-year low of 186k which reflects an 8.9 month-supply at the current sales pace. These data weaken the outlook for new home sales this year. The new home market remains mired at the bottom and it will take a significant turnaround in the economy, jobs and credit to get unstuck. Cheaper, distressed properties will also need to be worked through the market before fundamental support for new home sales returns.

THURSDAY, March 24th

Jobless claims fell 5k to 382k for the week ending March 19. The average level of initial claims has been below 400k in the last six weeks or so indicating slow, continuous improvement in the labor market. Job losses have slowed but job creation has yet to begin in earnest.

FRIDAY, March 25th

Fourth quarter GDP was upwardly revised to a 3.1% annual rate in its third and final estimate compared to a 2.8% rate of growth in the preliminary estimate and a 2.6% rate in Q3. Capital spending, home building and inventory investment were stronger than estimated while consumer spending, net exports and government purchases were weaker. The GDP price index was up just 1.3% from its year ago level as soft economic conditions make it difficult for companies to raise prices. Data released so far this year suggest that Q1 GDP grew at about the same pace as Q4 with estimates ranging from 2.5% to 3.5%.

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