Reading Rates: MBA Application Survey – November 14 2007

The Mortgage Bankers Association (MBA) publishes the results of a weekly applications survey that covers roughly 50 percent of all residential mortgage originations and tracks the average interest rate for 30 year and 15 year fixed rate mortgages as well as application volume for both purchase and refinance applications.

The purchase application index has been highlighted as a particularly important data series as it very broadly captures the demand side of residential real estate for both new and existing home purchases.

The latest data is showing that the average rate for a 30 year fixed rate mortgage increased slightly since last week to 6.19% while the purchase volume increased 4.8% and the refinance volume increased 6.4% compared to last weeks results.

It’s important to note that the data is reported (and charted) weekly and that the rate data represents average interest rates, and the index data represents mortgage loan application volume for home purchases, home refinances and a composite of all loans.

The following chart shows how the principle and interest cost and estimated annual income required to cover the PITI (using the 29% “rule of thumb”) on a $400,000 loan has changed since January 2007.

The following chart shows the average interest rate for 30 year and 15 year fixed rate mortgages over the last number of weeks (click for larger version).

The following charts show the Purchase Index, Refinance Index and Market Composite Index since January 2007 (click for larger versions).

Conspicuous Correlation: October 2007

Today, the Commerce Department released their monthly Retail Sales Report for October which continued to show an interesting and, with some pretty significant revisions to past results, even more significant correlation between declining consumer spending, particularly on discretionary items, and the decline in home values.

As in past months, I have isolated the primary discretionary retail sales categories into a single “discretionary” retail sales series, and then charted the year-over-year percentage changes since 2000.

I then added the year-over-year percentage changes of the S&P/Case-Shiller Composite index which broadly and accurately tracks single family home prices using data from Boston, Chicago, Denver, Las Vegas, Los Angeles, Miami, New York, San Diego, San Francisco, and Washington DC.

As a result of reader feedback (hattip Deejayoh) I have modified the approach of merely “eyeballing” the presumed correlation and instead used a Pearson correlation to provide a true statistical view of the data.

The result is a reasonable and even significant correlation between the deceleration, and now outright decline, of home prices and a deceleration and subsequent decline in discretionary consumer spending.

That said, the original correlation that seemed nearly perfect earlier in the year is now becoming lees correlated as home prices continue to erode and discretionary retail sales generally remain flat.

Again, I have updated the analysis by using a 3 month moving average for both the CSI series as well as the discretionary retail sales series.

The CSI is calculated monthly based on home sales that could have been settled as far back as three prior months so the smoothing should serve to better align each series.

Keep in mind that the analysis is STILL assuming completely coincident changes to home values and to consumer spending which is likely not a good assumption as most homeowners would likely pull back on spending after the realization that home values have declined.

In a upcoming post (with the next installment of the S&P/Case-Shiller data) I will attempt to shift the housing price decline further into the future (or spending into the past) following an assumption that declining prices are “leading” the declining spending but for now the correlation on the rates of change are still significant.

First, in order to get a sense of the original presumed correlation, take a look at the chart below showing the year-over-year percentage change to both the S&P/Case-Shiller Composite Index (measuring home price change) versus my “discretionary” retail sales index (measuring retail sales change).

Note that the chart shows that during the period from January 2001 to June 2003 retail sales faltered a little as the effects of the dot-com recession worked to dampen spending but that housing remained at exceptional rates of appreciation.

Notice also that from July 2003 to January 2006 both measures show exceptional, and possibly related or correlated growth that then seemed to also decline in tandem in early 2006 with the retail sales component having generally remained either negative or dampened similar to the rates seen during the last recession.

Next, let’s expand the chart a bit to include the full range of available data starting in January 1993 and running all the way through the latest month where both series have data points in July 2007.

Notice that in general, the rate of change of the two series do not appear to be very well correlated and, in fact, that during the tail end of the last housing recession in 1993, retail sales was growing strongly while home appreciation floundered along the bottom until 1997.

Also note that while growth (or lack thereof) of retail sales was clearly dampened during the dot-com recession, home price appreciation seems to have been little effected.



The final charts attempt to correlate the year-over-year rates of change of the underlying data series and 3 month moving average of those series.

As you can see there is little consistent correlation between the rates of change of these series but that having been said, the best correlation to date has been in the trend seen since 2006.

Although the correlation has weakened a little as home prices continue to slide and retail sales has at worst flattened, this current existing correlation would be interesting to watch over the coming months.

If a measurable pullback continues to occur in discretionary retail sales, this correlation will persist, leaving us to possibly conclude that there is a direct effect between the latest decline in home values and consumption of discretionary items.

NARcasting The Future: November 2007

Today, the National Association of Realtors (NAR) released yet another downward revision to their outlook for existing home sales for 2007 along with another dose of truly ridiculous spin.

In an effort to put their absurd bias into perspective I compiled all their forecasts for 2007 home sales into a chart along with a list of prominent quotes supplied with each forecast.


12/11/2006 Prediction: 6.40 million units.
Lereah "Most of the correction in home prices is behind us."

1/10/2007 Prediction: 6.42 million units.
Lereah "The good news is that the steady improvement in sales will support price appreciation moving forward."

2/7/2007 Prediction: 6.44 million units.
Lereah "After reaching what appears to be the bottom in the fourth quarter of 2006, we expect existing-home sales to gradually rise all this year and well into 2008."

3/13/2007 Prediction: 6.42 million units.
Lereah "Although existing-home sales will be marginally reduced due to subprime lending restrictions, they should be gradually rising this year and next."

4/11/2007 Prediction: 6.34 million units.
Lereah "Tighter lending standards will dampen home sales a bit, but by less than a couple of percentage points from initial projections."

4/30/2007
Lereah Leaves NAR for Move.com

5/9/2007 Prediction: 6.29 million units.
Yun "Housing activity this year will be somewhat lower than in earlier forecasts."

6/6/2007 Prediction: 6.18 million units.
Yun "Home sales will probably fluctuate in a narrow range in the short run, but gradually trend upward with improving activity by the end of the year."

7/11/2007 Prediction: 6.11 million units.
Yun "Home prices are expected to recover in 2008 with existing-home sales picking up late this year."

8/8/2007 Prediction: 6.04 million units.
Yun “With the population growing, the demand for homes isn’t going away – it’s just being delayed.”

9/11/2007 Prediction: 5.92 million units.
Yun “Patient buyers in most areas who do their homework will recognize that housing remains a good long-term investment.”

10/10/2007 Prediction: 5.78 million units.
Yun "The speculative excesses have been removed from the market and home sales are returning to fundamentally healthy levels, while prices remain near record highs, reflecting favorable mortgage rates and positive job gains."

11/13/2007 Prediction: 5.5 million units.
Yun "In some ways, the extended real estate boom from 2001 to 2005 created unrealistic expectations that housing is a short-term high-yield investment… 2007 will be the fifth best year for housing on record"

Pending Home Sales: September 2007

Today, the National Association of Realtors (NAR) finally released their Pending Home Sales Report for September 2007 showing yet again a truly stark and horrendous continuation of the historic decline to residential housing on a year-over-year basis, both nationally and in every region.

We are now firmly heading down the second slope of the pullback in residential housing demand with the Northeast, Midwest, West and the National regions having now fallen over 30% BELOW the seasonally adjusted home sales activity recorded in 2001, the first year Pending Home Sales were tracked.

As usual, NAR Senior Economist Laurence Yun takes another crack at spin and false optimism suggesting that sales will simply flatten out through the remainder of 2007.

“Over the near term, home sales are likely to be fairly flat as the lingering impact of the credit crunch filters through the system through the end of the year.

Even with relatively low fourth quarter sales, 2007 will be the fifth highest year on record for existing-home sales. The median existing-home price in 2007 will have fallen by less than 2 percent from an all-time high set in 2006,”

The following chart shows the national Pending Homes Sales Index since 2005 compared monthly. Notice that each year, the months value is decreasing consistently (click for larger version).

The following chart shows the year-over-year changes to the national Pending Home Sales index as well as comparing the latest results against the values seen in the peak year of 2005 (click for larger version).

Note that in the above charts, I had to use the Not Seasonally Adjusted (NSA) data series as NAR changed the methodology for their Seasonally Adjusted (SA) series a while back and never republished the numbers. This is why none of the data appears to be breaking below a value of 100 because it’s the SA series that is now below 100.

Keep in mind the current pending sales decline comes ON TOP of last years historic fall-off so the continued weakness is a sure sign that the decline is not ephemeral.

Look at the September seasonally adjusted pending home sales results and draw your own conclusion:

• Nationally the index was down 20.4% as compared to September 2006.
• The Northeast region was down 23.1% as compared to September 2006.
• The West region was down 25.6% as compared to September 2006.
• The Midwest region was down 14.4% as compared to September 2006.
• The South region was down 19.7% as compared to September 2006.

So it appears that, year-over-year, contract activity is still dropping rather sharply with ALL regions continuing to show significant declines.

Countrywide Foreclosures: October 2007

Today, Countrywide Financial (NYSE:CFC) released their October Operational Results showing again that delinquencies and foreclosures are continuing to remain at troubling levels with delinquencies climbing 32.96% and foreclosures continuing to soar over 112% since October of 2006.

Prior to January 2007, Countrywide reported foreclosure data as a percentage of the total number of loans serviced which obviously lacked complete clarity.

Below, are charts of both measures; delinquencies and foreclosures by total number of loans serviced and foreclosures by percentage of unpaid loan principle (Click for larger versions).

Either way you slice it, Countrywide is looking at some significant increases in foreclosure activity but notice that for the “unpaid loan principle” method, things are really looking dire.

Be sure to check out the Countrywide Financial Foreclosures Blog’s Inventory Tracker for some more startling evidence that foreclosures are skyrocketing over at Countrywide Financial as well as some excellent REO tracking features.

Calculate Your (Paper) Housing Wealth!

In an effort to make the most out of the S&P/Case-Shiller indices and the implications of the futures contracts that trade in concert with them, I have created the Home Value Calculator Tool which calculates your home’s value history based on a few simple pieces of criteria.

Plug in your purchase date, the price you paid and the market that your home is located in and…

POOF!

Out comes the complete history of your home’s value and, for some markets, predictions for its value in the future.

Of course, you should view this data as a rough estimate although, for my last home, the results are spot on.

The tool uses the CSI and daily settled futures data in order to formulate your home’s value history and additionally provides results in both “nominal” (i.e. non-inflation adjusted) and inflation adjusted terms.

For more information on the technicals of the underlying home prices indices, read my prior posts on the subject and check out the S&P/Case-Shiller/Futures Tool.

As usual, let me know what you think and of course, if you should notice any bugs!

S&P/Case-Shiller/Futures Tool Version 2.0!

Today, I updated the S&P/Case-Shiller/Futures Tool to fix a few annoying bugs and to add functionality that allows for some new and really exciting data visualizations.

For those who are unaware of the tools purpose, please read the tutorial for a detailed explanation but in short, the tool simply allows a user to chart any of the 22 S&P/Case-Shiller home price indices, adjusting elements like the date range and year-over-year changes, as well as simultaneously fusing the latest daily settled futures contract prices for the markets where futures are traded.

The Chicago Mercantile Exchange (CME) supports the trading of futures based on the S&P/Case-Shiller home indices so by fusing the latest results of a given home price index to the latest daily settled contract price for the various contracts available, the tool allows you to essentially see into the future for home prices with, at the very least, the accuracy of a whole marketplace of futures traders.

In an unexpected move, Standard & Poor’s recently released (mega hattip to BostonBubble) a boat load of new data for 17 of the 20 markets they track, now essentially breaking out each metro region into three separate price tiers and even expanding the historical data back as far as 1972 for some regions.

This is a very interesting development as you can clearly see distinct differences between the courses that each tier traversed in the past and the current direction they are taking now.

It’s important to understand how the tiers work in order to make best use of the tool.

The price range in each market’s low, middle and high tier is calculated independently so each market has a different ranges but you can simply visualize the ranges as lower, middle and higher priced single family homes relative to the market you are looking at.

Forgive me, but for now I don’t show the price range values for each tier in the tool (I will implement that in a later update) as I simply didn’t have enough time to parse out that data, store and incorporate it into the view.

The tiers themselves are broken out based on the latest results (i.e. homes that have recently sold in each price range) and then the data is essentially compiled backwards.

It’s important to understand that the S&P/Case-Shiller data is formulated from actual "repeat" existing home sale values that are recorded with actual deed transactions up to the window of time covered by the latest release.

To see the tiers, scroll down to the “Price Ranges” section and “check” the tier you are interested in and remember that “All” tier represents the original “vanilla” aggregate series.

Then click the “Update Chart” button and you will see the tier indices you selected plotted against one of the tiers year-over-year (YOY) columns.

The current charting component I’m using unfortunately does not do such a good job at plotting columns from multiple series so for now you can only show one YOY plot.

Notice that next to each price tier is a “radio button” that allows you to select the tier that you would like to see plotted out on a YOY basis.

Another thing to keep in mind is that the Futures contracts only correlate with the original “vanilla” aggregate series so if you choose a price tier other than “All”, the futures data will NOT plot.

This version of the tool is pretty solid but I have some great ideas for how this data can be better used and soon I will host additional tools to help in analyzing home prices so check back and remember that the Futures data is refreshed every day.

Let me know what you think and of course, if you should notice any bugs!

The Almost Daily 2¢ - The Subprime Ruse

Suprime is a far too convenient concept for those who would like to depict the housing downturn as contained.

Although it has been correctly associated with the first wave of housing boom borrowers who, having poor credit quality at the outset, are now undergoing tremendous stress as housing values decline, rates reset and lending standards tighten, it is just the bleeding edge.

We have to keep in mind that the key difference between a “prime” and “subprime” borrower is, in general, simply their FICO score… essentially the credit rating on the individual borrower themselves.

This makes for a pretty tenuous distinction given that prime and subprime borrowers alike gorged on the fruits of the exotic mortgage era with equal ferocity and neither is totally immune from the effects of a declining housing market and recessionary economy.

Sure, the borrowers with the weakest credit histories and holding the worst loans are going to collapse first but the notion that the prime marketplace will simply float along unscathed is simply naïve.

We have already seen significant stress coming from no-low documentation loans (i.e. home loans made with no income verification) regardless of the credit quality of the borrower.

Many of these loans were used by housing boom “investors” who turned to them as a means of borrowing far more money than they would ever have been extended otherwise.

As we all know, there was a tremendous movement to “invest” in residential real estate during this housing boom.

In fact, the share of existing homes being purchased as a “second” home went from a mere 7% in 2000 to a whopping 39.9% in 2005 and before you jump to some anecdotal notion of baby Boomers buying vacation homes, roughly 83% of these were reported to be for “investment” purposes leaving only 17% for pure leisure.

That represents an awful large cohort of homeowners who will undoubtedly continue to face tremendous stress as the market continues downward.

Lastly, consensus currently, but wrongly, holds the notion that the prime “primary residence” single family and condo homeowner have been largely unaffected by the downturn.

In fact, prime borrowers with adjustable rate loans have been entering foreclosure at an increasing rate and surpassing historical norms.

As the unwinding continues and the economy slows, mortgage stress will be felt widely, across ALL participants and for all products, likely concluding, in my estimation, with the prime Jumbo fixed rate borrowers.

Reading Rates: MBA Application Survey – November 08 2007

The Mortgage Bankers Association (MBA) publishes the results of a weekly applications survey that covers roughly 50 percent of all residential mortgage originations and tracks the average interest rate for 30 year and 15 year fixed rate mortgages as well as application volume for both purchase and refinance applications.

The purchase application index has been highlighted as a particularly important data series as it very broadly captures the demand side of residential real estate for both new and existing home purchases.

The latest data is showing that the average rate for a 30 year fixed rate mortgage increased slightly since last week to 6.16% while the purchase volume went virtually unchanged and the refinance volume decreased 3.2% compared to last weeks results.

It’s important to note that the data is reported (and charted) weekly and that the rate data represents average interest rates, and the index data represents mortgage loan application volume for home purchases, home refinances and a composite of all loans.

The following chart shows how the principle and interest cost and estimated annual income required to cover the PITI (using the 29% “rule of thumb”) on a $400,000 loan has changed since January 2007.

The following chart shows the average interest rate for 30 year and 15 year fixed rate mortgages over the last number of weeks (click for larger version).


The following charts show the Purchase Index, Refinance Index and Market Composite Index since January 2007 (click for larger versions).

The Almost Daily 2¢ - Storms a Brewin’

I think it’s safe to say that we have reached yet another turning point in the housing decline and its effect on the economy as a whole.

Even with the tremendous mortgage-credit turmoil and the emergency Fed actions seen in August, traditional consensus held firmly to the notion of “containment”, unwilling to accept that the housing bust would impact the consumer to an extent that might prove recessionary.

But as we can now see in the latest sentiment surveys, consumers are very clearly acknowledging pain specifically from declining housing wealth and more importantly, expecting more in the future.

This represents the continuation of what has been a consistent downshift in confidence that after having, in many ways, reached a crescendo during the summer of 2004, declined precipitously ever since.

This is a key point as it highlights the importance that people’s perception, sentiment and psychology has on a market and an economy.

Remember that during the summer of 2004, although there were some warnings from bearish economists and even some early bloggers, there was barley any real concern about the stability of the housing and mortgage markets on the part of the average consumer.

In the summer of 2004 interest rates were low, credit availability was tremendously high, jobs were strong, and sentiment and confidence were continuing to rise.

Then… something changed.

The nation’s housing market reached a peak in construction spending and the pace of home price appreciation on a year-over-year basis.

Not long after that, approximately one more selling season, existing home sales followed suit with the beginnings of a simultaneous surge in new and existing home inventories.

As we now know, this was the principle turning point in the housing mania and it was NOT brought about by a weakening economy and job market but instead likely a collective psychological shift.

The mania broke and now we are well into the aftermath.

Today we are just seeing the early signs of a substantive spillover of the housing decline and its resultant turmoil onto the consumer.

With many retailers currently reporting a pullback on spending, especially for discretionary goods, and expectations for the weakest holiday season in the last five years, we may now be at a significant turning point for the consumer.

Realtor’s Follies (A Slight Return)

Some of you may recall a post I wrote in September 2006 that chronicled the details surrounding the then President of the National Association of Realtors (NAR), Thomas M. Stevens, inability to sell his own home.

At that time, the house had an unchanged listing price of $1,450,000 and had been sitting on the market for just over 350 days.

Obviously, this was a bit embarrassing for both Stevens and the NAR as was made perfectly apparent during both a Washington Post article and a subsequent CNBC interview.

"Who knew last September how long this down trend was going to continue, … You need to adjust the price. . . . But I didn't do that. And my house is still on the market."

"What I should have done, was listened to my agent and cut the price by $50,000 to $100,000 early on, and the property would have sold last October. … I should have listed it a month earlier,"

Stevens, who is also the Senior Vice President of NRT, the nation’s largest residential real estate brokerage, continued to leave the price unchanged for months afterward which, combined with an obviously declining housing market, kept the property sitting vacant and unsold until sometime in early 2007 when the listing was pulled from the MLS.

At that time, I had assumed that the property had simply sold but was unable to verify that fact.

Now though, and thanks to the super astute fellow blogger AUA of DirectCurrent who recently found the house again on the market, it appears that it DIDN’T SELL… EVEN AFTER SIGNIFICANT PRICE REDUCTIONS!

Yes… You heard right… the house is STILL on the market (click for... listing, zillow, video, etc.) and now with a listing price of $1,285,000.

That’s roughly 766 days on the market and $165,000 of price reductions and STILL NO TAKERS!

This has got to be one of the best indicators of the truly phenomenal downturn the nation’s housing markets are experiencing.

Furthermore, if a sophisticated and leading residential real estate broker and former president of the National Association of Realtors can’t accurately price and sell his own home, then how can any member Realtor be trusted to “evaluate your situation?”

The Daily 2¢ - New Campaign, Old Scam

There just doesn’t seem to be ANY limit to the depths to which the truly underhanded National Association of Realtors (NAR) will reach in attempting to protect their own self interest.

Their new ad campaign, which apparently replaces last year’s ads promoting the absurd notion that “It’s a Great Time to Buy or Sell a Home”, shows (see ad above) what looks to be a 4 year old in a backyard swing with the title “Buying a Home is a Great Way To Build Long Term Wealth, There are Some Other Important Dividends Too”.

Along with the ludicrous “tug at the heartstrings” comes some “facts” to back up their claims ranging from “the value of a home nearly doubles every 10 years” and “the average homeowner has 36 times the wealth of the average renter” to the pièce de résistance… “the best way to evaluate your situation and options is to contact a Realtor”.

They are truly a desperate and reprehensible outfit.

What’s going to be next year’s campaign?

Possibly a cute little puppy being held firmly around the neck with snub nose pressed to its head and the tagline “Buy a home or this bitch dies!”

At this point, I wouldn’t be too surprised…

Am I alone in thinking that NAR’s attempts to persuade unsuspecting people into “investing” in a depreciating asset as large as a home, simply to serve the interests of their organization and its members is tantamount to fraud and should be prosecuted?

Envisioning Employment: Employment Situation October 2007

In an effort to gain some further perspective on the impact the housing decline could be having on the wider economy, I have added the Bureau of Labor Statistics (BLS) monthly Employment Situation report to the lineup of recurring posts.

Ill expand the lineup of charts in future posts but for now, as a baseline, let’s look at the course that non-farm employment has taken (click for larger version) since 2003.

Notice first that during the early months of 2003 jobs were still contracting a bit presumably in the wake of the dot-com recession and 911 turmoil but then bottomed that summer and turned up for the remainder of the year and has remained in a growth phase ever since.

Also note that this chart captures four separate data-points per month.

The Monthly Initial Result is the value first published in the monthly Employment Situation report while the Monthly “Revised” result is the final revision for that month settled three months later.

The “Annual” Revised Result is published in the January Employment Situation report and revises every month in the prior year.

Finally, the “Final” Revised Result is the value currently published as part of the BLS historical data.

This is a typical routine as the BLS first publishes a monthly result, then revises it over the next two months, then revises the whole year at the beginning of the next year, and finally revises the whole historical series as underlying components are revised.

Notice that in November and December of 2006 there were two dramatic upward revisions that added nearly 1.5 million jobs and that initially the data looked very unusual.

Then in the January 2007 annual revision, the BLS revised back every month in 2006 making the discrepancy less apparent.

Finally, with the “Final” historical revision the data was revised even further making the trend line look fairly well synthesized.

The moral of the chart is only this, the monthly BLS jobs data is VERY subject to revision so use caution before drawing any conclusions one way or the other.

In future posts, I’ll continue to track the revisions as well as break out construction jobs and add other housing related analysis.

Pending Home Sales: September 2007 – NOT!

UPDATE: NAR has finally published the September results read here.

Today, the National Association of Realtors (NAR) was scheduled to release their Pending Home Sales Report covering September 2007 but instead revised their release schedule going forward, combining the pending home sales results with their monthly housing forecast.

I’m not certain why they made this change but possibly it is an attempt to limit the frequency that they release bad news to the press.

Until now, every month brought with it the pending home sales report during the first week, the housing forecast in the middle, and the existing home sales during roughly the last week.

Possibly this was a one-two-three media punch that the NAR couldn’t stomach any longer.

Either way, the next release is now scheduled for November 13 so we will have to wait till then for the next installment of the most leading of existing home sales indicators.

Constructing Capitulation: September 2007

Looking back at September’s results (released throughout October) it’s now unequivocally obvious that the nation’s housing markets, having fully transcended the mania that existed primarily in the first half of the decade and now, in its aftermath, after being dramatically and irreparably impaired by the unwinding of the resultant mortgage-credit debacle, are now hurtling headlong into a dramatic new leg down.

While housing demand continues to slow and inventories swell far beyond historic levels, the credit markets that had provided such a plentiful supply of cheap Jumbo mortgages remains non-existent.

Homebuilders have now clearly accepted the severity of the recession and are re-pricing accordingly but as is typical, the existing home sellers remain behind the curve.

Pending home sales, the most leading existing home sales indicator, again showed a truly dramatic continuation of the decline to residential housing sales both nationally and in every region.

The Northeast, Midwest, West and the National regions having now fallen as much as 20% BELOW the seasonally adjusted home sales activity recorded in 2001, the first year Pending Home Sales were tracked.

The National Association of Realtors (NAR) released their eighth consecutive downward revision to their annual home sales forecast for 2007 putting the current outlook far below the “rose colored” initial predictions from the start of the year.

NAR Senior Economist Lawrence Yun is now attempting to persuade others that the speculative excesses have now cleared the market. “The speculative excesses have been removed from the market and home sales are returning to fundamentally healthy levels, while prices remain near record highs, reflecting favorable mortgage rates and positive job gains."

Countrywide Financial (NYSE:CFC) continues to register tremendous borrower stress as delinquencies and foreclosures continuing to remain at troubling levels with delinquencies jumping 30.44% and foreclosures soaring 149% since September of 2006.

The housing weakness still appears to be contributing to a pullback in the retail sales of the most discretionary goods although I will continue to revise the procedures for determining this correlation later this month.

Homebuilder confidence is now sitting AT OR BELOW the worst levels ever seen in the over 20 years the data has been being compiled.

This suggests that the current severe correction has surpassed all other events seen in the last 22 years and is now firmly in uncharted territory.

The Census Department’s New Residential Construction Report firmly indicates a new leg down in the decline for residential construction showing substantial declines on a year-over-year and month-to-month basis to single family permits both nationally and across every region.

The August 2007 results of the S&P/Case-Shiller home price indices continued to show significant weakness for the nation’s housing markets with 15 of the 20 metro areas tracked reporting year-over-year declines and now virtually ALL (except Charlotte NC which changed 0.0%) metro areas showing declines from their respective peaks.

Topping the list of peak decliners are Detroit at -12.18%, Tampa at -10.57%, San Diego at -9.43%, Miami as -9.11%, Washington DC at -8.38%, Phoenix at -8.16% and Las Vegas at -7.65%.



NAR’s Existing Home Sales Report showing perfectly clearly, that demand for residential real estate has now taken a new leg down uniformly across the nation’s housing markets likely as a direct result of the significant structural changes that have taken place in the credit-mortgage markets.

The advance GDP report for Q3 2007 showed an increase in the severity of the drag coming from the decline in residential fixed investment, that is, all investment made to construct or improve new and existing residential structures including multi–family units, with the current quarterly fall-off registering a whopping decline of 20.1% since last quarter while shaving 1.05% from overall GDP.

The following chart shows real residential and non-residential fixed investment versus overall GDP since Q1 2003 (click for larger version).

The Census Department’s New Residential Home Sales Report for September again confirmed the hideous falloff in demand for new residential homes both nationally and in every region as well as reporting significant downward revisions to June, July and Augusts’ results.

As with prior months, on a year-over-year basis sales are still declining significantly, with the national measure dropping a truly ugly 23.3% below the sales activity seen in September 2006.

The latest release of the Reuters/University of Michigan Survey of Consumers showed in unequivocal terms that the US consumer is feeling the burn from declining home values.

In fact, 28% of respondents reported that their own homes had declined in value, well above the record peak result of 24% recorded during the last housing slump in 1992.

Finally, the Census Department’s Construction Spending report for September again demonstrated the significant extent to which private residential construction spending is contracting.

With the weakening trend continuing, total residential construction spending fell -16.78% as compared to September 2006 while private single family construction spending declined by a grotesque -26.14%.

Key Report Details:

• The seasonally adjusted annul rate of private residential construction spending has now dropped 26.53% from the peak set back in February 2006.
• Overall private residential construction spending dropped -16.78% as compared to September 2006.
• Single Family residential construction spending dropped 26.14% as compared to September 2006.

The following charts show changes to construction spending (click for larger version):