Housing Market Update - August 2010

New home construction statistics continue to disappoint. The number of starts decreased by 5 percent in June to 549,000 units. Completions saw a bump as the original end date for the homebuyer tax credit program required all new homes to be finished and transferred to the buyers by end of June. Permits inched up by 2.1 percent to 586,000.

The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) in June indicates that builders confidence in the market is considerably weaker than it was in April. This chart, produced by the NAHB, shows the correlation between the HMI and single family housing starts, which indicates that we are likely to see continued weakness in the new home market.

Existing and new home inventories remain high, another negative sign for housing starts. May’s pending home sales index, which fell 30 percent, will continue to work itself through the market in July, as sales tend to lag this index by one or two months.

Home prices are showing signs of stabilization. May over April, the S&P Case-Shiller home-price index 20-city composite increased by 1.3 percent. The year-over-year increase was 4.6 percent. This may mean that prices have bottomed. It may also mean, however, that home prices will follow the economy and succumb to a double-dip.

Interest rates are one bright spot in the industry, as they remain at 50-year lows.