Archive for the ‘Fed and Economy Watch’ Category

Mortgage News Daily has written much content in recent months concerning the growth of the rental market and the difficulties communities are facing in keeping up with affordable rental housing needs.  The latest release of the National Association of Home Builders' Multifamily Production Index (MPI) indicates developers are beginning to notice opportunities in the rental market and are stepping up production of multi-family housing.  However, a second index embedded in the report, the Multifamily Vacancy Index (MVI), which measures the multifamily housing industry's perceptions of vacancies, may indicate a growing misalignment between who needs  rental housing and who it's being produced for....

The MPI, which tracks multifamily housing industry sentiment, provides a measure of construction activity in three sectors - low-rent units, market-rent units, and "for sale" units.  Each of the three components can achieve a score of 0 to 100, the MPI is a composite score of all three.  Any score over 50 indicates that more respondents see the market(s) improving than the number who see it getting worse.

The MPI composite increased from 40.8 in the fourth quarter of 2010 to 41.7 in the first quarter of 2011. This was its third consecutive quarterly increase. Improvement, however, was restricted to the pricier market rate rental units.  That component of the index rose from 51.7 in the fourth quarter to 61.5 in the first quarter of 2011 while the index for low-rent units dropped 3 percentage points to 45.7 and the "for sale" component was down 1.3 percentage points to 23.4. Expectations for production in six months dropped four percentage points for low-rent and ten percentage points for both market rate and "for sale" units from the perceptions held in the previous quarter.  Unfortunately it is in the low-rent sector where needs are greatest.

  In a detailed analysis of the American Housing Survey the Department of Housing and Urban Development (HUD) found that 7.1 million households fell into the "worst case" category where over one-half of the monthly income is spent on housing.   A recent study by Harvard's Joint Center on Housing found nearly three-quarters of all renters have incomes below the median income for all households including 41 percent in the bottom quartile and 30 percent in the lower-middle one.  Only about 10 percent of renters are in the highest income quartile.

The Multifamily Vacancy Index (MVI) measures the multifamily housing industry's perception of vacancies in Class A, Class B, and Class C units; the lower the number on a scale of 0 to 100, the fewer the vacancies.  The MBI increased slightly from 33.3 in the fourth quarter to 35.0.  Dropping vacancies were concentrated in the lower two sectors with Class C (the lowest priced) apartments increasing from 38.0 to 40.2, Class B jumping to 33.6 from 28.3 while the index for Class A apartments declined from 37.3 to 34.3.

Looking forward six months, respondents saw a tightening market in all three segments, but especially in Class B apartments where the index rose from 24.8 to 33.4.

"Both the Multifamily Production Index and the Multifamily Vacancy Index have emerged as leading indicators that provide information about the likely movement of Census Bureau statistics of multifamily starts and vacancy rates about one to three quarters in advance," NASHB Chief Economist David Crowe said. "Even though we saw a slight increase in the vacancy index in the first quarter, the long-term trend is downward. Given the demographics of demand, we expect that trend to continue.

"Although the increase is cause for optimism, the multifamily market still faces significant challenges, Crowe said. "There is considerable pent-up demand, but the ongoing crisis in funding for new construction means that developers are limited in their ability to meet that demand."  

Related MND comments....

READ MORE:  HUD Focused on Rebuilding America's Dilapidated Housing Inventory

READ MORE:  Affordable Housing Units Needed for Low Income Renters

READ MORE: The Dearth of Affordable Rental Housing

READ MORE:  Gimme Shelter: Homelessness Rate Climbing. Low Income Rental Units Needed

"With so many foreclosed properties sitting empty on the market we can expect remodeling and rehabbing to be a leading indicator of a bottom in the housing market", says MND's Managing Editor Adam Quinones. "We already know there is dearth of affordable rental housing available to low income renters. From that perspective, FHA should open its 203(k) program to investors if they want to accomplish their affordable housing goals."

The Mortgage Bankers Association (MBA) today released its Weekly Mortgage Applications Survey* for the week ending June 3, 2011.

The Refinance index seems to be stuck around the 2500 level, having risen about 500 points during the 2 month interest rate rally.  The last two times mortgage rates were this low, the MBA’s Refi Index was operating almost exclusively above the 4000 mark.  That was over 7 months ago.  The fact that these rates haven’t motivated more refinance activity speaks to several barriers that continue to prevent borrowers from reducing their monthly payment.

The Purchases Index fell 4.4% to 182.9 from 191.4 and continues to stagnate at very low levels.  In fact, there’s no evidence that they’ve broken the downtrend that began in November 2007 when the index was in the high 400’s.  Since the tax credit expired, the index has been stuck between 160 and 220, languishing in a sideways.

Excerpts from the Release...

The Market Composite Index, a measure of mortgage loan application volume, decreased 0.4 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 11 percent compared with the previous week.  The four week moving average fell from 3.0 to 1.0 per cent.

The adjusted Refinance Index increased 1.3 percent from the previous week (the Refinance Index is not seasonally adjusted but is adjusted for the Memorial Day holiday). The four week moving average is up 2.1 percent, lower than last week’s reading of 3.8 per cent. The refinance share of mortgage activity increased to 67.3 percent of total applications from 65.7 percent the previous week. This is the highest refinance share since January 28, 2011.

The seasonally adjusted Purchase Index decreased 4.4 percent from one week earlier. The unadjusted Purchase Index decreased 15.2 percent compared with the previous week and was 9.0 percent higher than the same week one year ago. The four week moving average is down 1.6 per cent after last week showed a 1.1 pct improvement.

The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.54 percent from 4.58 percent, with points decreasing to 0.95 from 1.00 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans. This is the lowest 30-year contract rate since November 19, 2010. The effective rate also decreased from last week.

The average contract interest rate for 15-year fixed-rate mortgages decreased to 3.67 percent from 3.78 percent, with points decreasing to 1.06 from 1.07 (including the origination fee) for 80 percent LTV loans. This is the lowest 15-year contract rate since October 22, 2010. The effective rate also decreased from last week.

The adjustable-rate mortgage (ARM) share of activity decreased to 6.1 percent from 6.2 percent of total applications from the previous week.

Regarding the barriers that continue to block borrowers from reducing their monthly payments...

Two weeks ago we wrote, "Right now we're witnessing the beginnings of a mini-refinance boom in the primary mortgage market, but there has been little activity in the secondary market that would indicate increased rate locking by consumers." says MND's Managing Editor Adam Quinones. "However, if conventional 30-year rates reach 4.25%, we'd expect to see a mini-boom scenario play out. There is much stored demand in the system as many borrowers missed the boat on record low rates in October and early November. This crowd is waiting in the wings for those rates to return. Whether or not that happens is still very much up in the air"

In reaction to that comment, Ted Rood, a loan originator from MetLife Home Loans added, "One thing to consider regarding refi volume is that HUD effectively ended FHA streamlines over the course of the last year by tightening underwriting guidelines and jacking up monthly MIP fees. After the change, many existing FHA clients have been unable to meet net benefit rules,  even when dropping their rate by 1% or more, since their monthly MIP would double on the new loan. So FHA clients don't get to benefit from lower rates and HUD doesn't get new upfront MIPs from existing clients with clean payment histories who want to refinance".

READ MORE: New FHA MIP Structure to Slow Streamlines

READ MORE: Rents Seen Rising as Poor Credit Hurts Homeownership Demand

READ MORE: Realtors Request Looser Credit Regs as Home Sales Decline

*The MBA's loan application survey covers over 50% of all U.S. residential mortgage loan applications taken by mortgage bankers, commercial banks, and thrifts. The data gives economists a snapshot view of consumer demand for mortgage loans. In a falling mortgage rate environment, a trend of increasing refinance applications implies consumers are seeking out lower monthly payments. If consumers are able to reduce their monthly mortgage payment and increase disposable income through refinancing, it can be a positive for the economy as a whole (may boost consumer spending. It also allows debtors to pay down personal liabilities faster. A trend of declining purchase applications implies home buyer demand is shrinking.

The gloomy picture painted by The State of the Nation's Housing report released yesterday by Harvard's Joint Center on Housing Studies has but one bright spot - the improving rental housing market. 

On virtually every other level it appears that a housing recovery is still months if not years away. Rather than leading the country out of the recession as it has done in prior downturns, the housing industry is holding back economic growth. The report details a number of housing areas where, rather than the outlook improving as the economy began to pick up, things actually got worse.

First of all, household growth has dropped precipitously since 2007.  In the four years since, an average of 500,000 new households have formed each year compared to the 1.2 million annual pace averaged between 2000 and 2007.  This is even more disheartening as the "echo boomer" generation, those born after 1986, is the largest generation in our history to reach its 20s, peak household formation years.   Instead of forming households, many in this age group have stayed in or returned to their parents' homes.  At the same time, for the first time in decade the rate of immigration as slowed.  From 2004 to 2007 the number of new households headed by foreign born citizens increased by 200,000 per year but since 2007 the number foreign-born non-citizen households have declined by the same amount. 

The rental and the homeowner market have diverged.  There has been a net shift of 1.4 single family homes from owned to rental property between 2-007 and 2009, almost twice as many as in the previous two year period.  Still, rental vacancies are down, dropping from about 3.5 million to less than 2 million between 2009 and 2010, and rents have begun to move up.  At the same time homeowner vacancies, which dropped from over 9.5 million in 2008 to about 7.8 million in 2009 has declined only fractionally since even though new home construction has slowed considerably and banks appear to be holding large numbers of foreclosed homes off of the market.  Still, housing prices, unlike rents, have resumed their decline. Unusually large numbers of households are switching from owner to renter and the ownership rate has fallen from 69 percent in 2004 to 67 percent in 2010.  The report says that the continuing foreclosures and reluctance on the part of owners to buy as long as prices are unstable will cause home ownership to continue its decline through 2011. 

The Harvard report cites a Fannie Mae study showing that while attitudes toward homeownership have become more negative over the last few years, 74 percent of renters and 87 percent of the general population still view homeownership as safe investment.

While many households aspire to homeownership, tightened underwriting standards may stand in their way and the report speculates that the proposed 20 percent down payment requirement for qualified residential mortgages could sharply curtail homeownership unless the borrower obtains a government guarantee.  "Over the longer term, it is unclear how the impending reform of the housing finance system, (...) will influence the cost and availability of mortgage loans.

The number of rental households accelerated in the second half of the last decade, swelling by an estimated 3.9 million between 2004 and 2010 but rental vacancy rates increased and rents fell during the same period as new units were added and homes were converted from ownership to rentals.  In 2010, however, the rental market moved into high gear and the vacancy rate dropped from 10.6 percent to 9.4 percent over the course of the year.  MPF Research reported vacancy rates below 5 percent in almost one third of the 64 markets it studied and more than half had rates below 6 percent.   As vacancies declined, rents rose.  Rents in professional managed apartments were up 2.3 percent last year with most of the growth in metropolitan areas.  As employment grows, especially among younger persons, and homeownership continues to decline there will be pressure on the rental market, pushing rents up and encouraging multi-family construction.   Given the time line for new construction, however, rents are likely to remain tight in the short term and will present increased affordability challenges for low-income renters.

There is much uncertainty in the market regarding access to mortgage credit, home buying attitudes, immigration trends and laws, and household formation, but there is certainty about some factors related to demographics.  It is known that the aging baby boomers will drive up the number of older households by some 8.7 million by 2020.  This tends not to be a mobile population and will provide "ballast" for the owner market, offsetting in part the lower homeownership rates among younger households.

While the senior population is likely to age in place, if boomers follow the pattern of the preceding generation some 3.8 million will downsize their homes over the next ten years, lifting demand for smaller housing units and having a major impact on the housing markets in preferred retirement destinations.  The large pre-boomer population will create a similar demand for assisted and independent living developments.

The echo-boomer generation will have a less predictable impact on housing markets.  There are questions involving their homeownership attitudes and the net impact of immigration.  There is reason to believe that this generation will be large enough to boost household formation and the demand for starter homes and apartments.  The report states that if household formation (headship) rates return to their pre-recession average and if immigration is just half of what the Census Bureau projects, the number of households under age 35 will grow to nearly 26.5 million in the next decade.

Affordability is another challenge facing the housing market.  In 2009 10.1 million renters and 9.3 million owners paid more than half their income for housing.  While this hits low-income households the hardest, households with incomes under $15,000 pay over 80 percent of their incomes for shelter, the cost pressures have been moving up the income scale.  Households earning $30 to $45 thousand increased the proportion of their incomes spent on housing from 30 percent to 40 percent over the ten year period ending in 2010.

The recent crash has wiped out household wealth, ruined credit ratings and devastated communities with foreclosures and has left nearly 15 percent of homeowners in homes that are "under water".  This has reduced the amount that owners can cash out of their homes by selling or refinancing.

The report concludes by saying that the strength of the housing recovery, when it does finally occur, will depend on how fully employment bounces back, and then local markets will revive in proportion to the increase in jobs, the depths housing fell during the recession, and the amount of overbuilding that occurred before the downturn.  But the most critical factor for housing recovery in the resumption of household growth and it may be that the unemployment rates on top of the long-term housing affordability issues may have lowered the baseline trend of household growth itself.  "To match the 1.12 million annual rate average in the 2000s, household formation rates must return to their 2007-2009 average and net immigration must reach at least half of Census Bureau projections," the report says.

In the near term it will be rental markets that are likely to lead the housing recovery, but once consumers decide that a floor has formed under house prices, their reentry into the market could quickly burn through the lean inventory of unsold new homes and reduce the excess supply of existing homes on the market.  There is also the danger that government programs to address rent affordability and assisting distressed neighborhoods will feel the budget axe just as affordability problems are escalating.

Related MND comments....

From: HUD Focused on Rebuilding America's Dilapidated Housing Inventory

"Take note of HUD-sponsored initiatives aimed at rebuilding America's dilapidated housing stock." says MND's Managing Editor Adam Quinones. "This is where housing professionals will find the most opportunity in years ahead.  The FHA should reopen the 203(k) program to investors if they want to encourage private investment in the U.S. housing market."

From: Home Remodeling a Forward Indicator of Housing Bottom?

"With so many foreclosed properties sitting empty on the market we can expect remodeling and rehabbing to be a leading indicator of a bottom in the housing market", says MND's Managing Editor Adam Quinones. "We already know there is dearth of affordable rental housing available to low income renters. From that perspective, FHA should open its 203(k) program to investors if they want to accomplish their affordable housing goals."

READ MORE: Affordable Housing Units Needed for Low Income Renters

The House Subcommittee on Capital Markets and Government Sponsored Enterprises has approved eight bills to end what it calls the bailout of Freddie Mac and Fannie Mae, the two government sponsored enterprises (GSEs) which have been in government conservatorship since August 2008.  Seven of those bills, all sponsored by Republican members of the committee, were the focus of a hearing held in late May.  Here is a brief description of each bill:

1. Prevent Dividend Payment Decrease. This legislation mandates continuing the 10 percent dividend currently paid to the Treasury Department as part of the Senior Preferred Stock Purchase Agreement (PSPA).  The Administration has suggested amending this requirement as it is a driving factor behind the ongoing need for cash infusions form Treasury to the GSEs.
2. Abolish Affordable Housing Trust Fund. According to the sponsor, with the GSEs in conservatorship and losing billions of dollars per quarter, "there is no need to have an additional requirement on them to send a portion of their revenue to special interest groups at the expense of American taxpayers."
3. Ensure an Exact GSE Replica is Not Created.  The Housing and Economic Recovery Act (HERA) requires that if either Fannie Mae or Freddie Mac is placed in federal government receivership a new entity is created with a government charter and private stockholders.  This bill prohibits such action.
4. Require Disposition of Non-Mission Critical Assets. The legislation directs the Federal Housing Finance Agency (FHFA) Director to require Fannie Mae and Freddie Mac to dispose of all non-mission critical assets, including, but not limited to, patents and data. 
5. Set a Bailout Cap for the GSEs. The legislation sets a cap on the amount of money that the American taxpayers will be charged for the bailout of Fannie Mae and Freddie Mac
6. Subject Fannie and Freddie to FOIA. The legislation subjects Fannie Mae and Freddie Mac to the Freedom of Information Act (FOIA) from which they are currently exempt.  As private entities they have been exempt from FOIA but conservatorship has essentially made them government companies, it only makes sense that they should be subject to FOIA standards.
7. Prohibit Taxpayer Funding of GSE Employee Legal Fees. The legislation limits taxpayer exposure to the mounting legal expenses of Fannie Mae and Freddie Mac.  Since 2008, the American taxpayers have spent more than $162 million defending Fannie, Freddie and their former top executives in civil lawsuits.  This bill would minimize taxpayer liability to GSE legal fees by allowing FHFA to put limits on the advancement of legal fees for Fannie and Freddie executives involved in cases of fraud.

There was no information given on the above referenced eighth piece of legislation.

Testimony was given at the hearing by Edward J. DeMarco, acting director of FHFA; Dr. Anthony Sanders, Mercatus Center Senior Scholar and Distinguished Professor of Real Estate Finance, George Mason University; Mr. David John, senior research Fellow, The Heritage Foundation; and Dr. Sheila Crowley, president National Low Income Housing Coalition.

After making a plea to the committee that FHFA as regulator and conservator of the GSEs be allowed to use its best judgment to preserve and conserve the GSE assets as it transforms and winds them down, DeMarco gave his thoughts on each of the seven proposals. Here is his feedback...

1. Prevent Dividend Payment Decrease: While FHFA has no plans to seek a change in the dividend rate, fixing the dividend at 10 percent may limit some of the resolution options and limit the ability of the GSEs to build retained surplus and exit from conservatorship.
2. Abolish Affordable Housing Trust Fund: DeMarco said in reality the GSEs had never made any contributions to the Housing Trust Fund and it would be inappropriate for them to begin doing so while under conservatorship and in debt to taxpayers.
3. Ensure an Exact GSE Replica is Not Created: While current rules require the recreation of the GSEs under certain circumstances, DeMarco said there appears to be general agreement that Freddie Mac and Fannie Mae should not be reconstituted in their current form, "but we leave it to Congress to decide what should replace them and what level of government support to provide for the market."
4. Require Disposition of Non-Mission Critical Assets: FHFA has already begun to fulfill the intent of this legislation regarding the sale of non-mission critical assets but, DeMarco again stated the need for the conservatorship to exercise its best judgment to preserve and conserve the assets saying that discretion is particularly important when disposing of assets.
5. Set a Bailout Cap for the GSEs: The legislation requiring a bailout cap specifies the greater amount of $200 billion or $200 billion plus the cumulative total of Deficiency Amounts determined for calendar years 2010-2012 less any surplus at the end of that period.  DeMarco said this cap is consistent with that already in place under the PSPAs.
6. Subject Fannie and Freddie to FOIA: The core purpose of the Freedom of Information Act (FOIA), DeMarco said is to enhance public understanding of the operations or activities of the government.  This core purpose is not served by applying FIOA to the GSEs which did not cease to be private legal entities when they were placed into conservatorship.  Furthermore, subjecting them to FOIA would incur significant operational and compliance costs which would undermine FHFA's mandate to preserve and conserve the GSEs' assets.
7. Prohibit Taxpayer Funding of GSE Employee Legal Fees: DeMarco raised strenuous objections to several issues raised by the prospect of limiting the advancement of funds to pay legal fees or provide settlement reimbursements.  First, this would affect the GSEs' ability to attract and retain employees and, unless made prospective, would undermine current employee agreements.  Such a limit would also differentiate the two entities from other regulated regimes.

Dr. Anthony Sanders, Mercatus Center Senior Scholar and Distinguished Professor of Real Estate Finance, George Mason University, argued in his presentation that there is really no need for Fannie Mae or Freddie Mac.  "If the private sector can replicate Fannie and Freddie's only unique 'virtue' - a federal government guarantee - then there is no justification for keeping (them) around either in conservatorship or in their pre-conservatorship form.  

There needs to be a hard look at where mortgage-lending is today, he said.  Even with the shrinking of the market, the GSEs continue to grow rapidly.  The banks are selling nearly all of the loans they originate while at the same time purchasing back the same paper from the mortgage-backed securities market (MBS) for their portfolios.  Getting rid of favorable capital treatment for the GSEs for banks would stop the capital arbitrage that exists, encouraging banks to hold MBS.

The first task of reform is to find investors who are willing to take the first-loss positions in mortgage loans.  If the reformed markets are able to attract new capital without any change in the funding, the size of the mortgage markets will remain the same.  However, if some investors are hesitant to hold anything but GSE MBS because of the guarantee, the markets will shrink in size.  Funding would not evaporate, but it would be a matter of at what price investors would supply the funds.

He urged that that available products be modeled more like those in other countries; specifically that alternatives be developed to prohibiting pre-payment penalties and to the routine use of 30-year fixed rate mortgages both of which, he said, penalized borrowers who do not necessarily need to utilize those features.

He criticized the government's policy of "chasing homeownership" and recommended that Congress and the administration start unwinding subsidies to homeownership starting with the GSEs. Saunders laid out a number of suggestions to help the mortgage market reduce its dependence of government including: Covered Bonds, Reviving the private label MBS market, Increasing portfolio lending for banks fund through a mix of covered bonds and securitization, a privatization model for the GSEs in which they would be franchised and operate more like non-depository banks or financial institutions, Moving affordable housing mandates from the GSEs to HUD. He said that weaning the economy off of the GSEs should be done over a five-year sunset period defined by the following steps,

1. Reduce conforming loans limits but not by the drastic steps others have recommended. Saunders suggested 10 percent per year coupled with a review of the progress of market recovery each year.  The goal would be to achieve limits at 50 percent of the current levels at the end of five years.
2. End the purchase of non-prime affordable-housing goal mortgages including those with downpayments of less than 20 percent unless accompanied by private mortgage insurance.
3. Freeze and unwind retained portfolios.
4. Eliminate nonmortgage investments.

He made an "educated guess" about the market without GSEs but with FHA, covered bonds, and private label MBS.  First, new mortgage rates would probably be 50-100 basis points higher in the short term which would cause home prices to fall slightly or take longer to recover.  In the longer term the rate would be 40-100 basis points higher.

There would be more short-term variable rates mortgages as well as more rollover mortgages where the borrower's rate changes to the market rate after a fixed period.  While the higher mortgage rates would lead to decreased homeownership rates the higher down payments would produce safer mortgages for lenders, investors, and insurers.

He sees two possible outcomes for lenders.  Either the mortgage markets would shrink because investors are unwilling to fund the loans or, more likely, banks and other entities would expand to fill the gap left by the exit of the GSEs.

Mr. David John, senior research Fellow at The Heritage Foundation, told the subcommittee that he basically agreed with all seven of the proposed bills except for a slight technical adjustment to prevent conflict between the proposed bailout cap and the bill to prevent a lowering of the dividend.  He urged the members to focus on the elimination of the GSE portfolios and recommended that a temporary subsidiary of FHFA be established to handle that task.

In addition to managing their portfolios the two additional responsibilities of the GSEs should be handled separately.  The private sector must be encouraged to replace the GSEs financial activities including a private market for MBS and covered bonds.  Second, the subsidies and policy goals of the GSEs should be transferred to HUD and all affordable housing goals imposed on the GSEs should be repealed.

Dr. Sheila Crowley, president National Low Income Housing Coalition, spoke only to the bill seeking to abolish the Affordable Housing Trust.  She told the members that the National Housing Trust Fund (the correct name of the entity) has a single goal, to eliminate the shortage of housing for persons of extremely low income.  This, she said, is a proper role for government as it is clear that the market will not fill the gap. 

The fund was envisioned to be funded in part by the GSE's but the law mandating this was passed only a short while before they were placed into conservatorship and no payment has ever been made.  "Regardless of the future of Fannie and Freddie or what Congress decides the future of housing finance policy will be," Crowley said, "the statutory basis for the National Housing Trust Fund should stand alone and the profits realized by the sale of warrants received from banks under TARP.  Another method would be to tap any taxes raised through the proposed changes in the home mortgage deduction.

The March S&P/Case Shiller Home Price Indices, released by Standard & Poor's, paint an increasingly clear picture of the "double dip" in U.S. home prices.

The indices, which are billed by S&P as the leading measure of U.S. home prices, are constructed to track the price path of typical single-family homes in a number of metropolitan statistical areas (MSAs).  The study uses matched price pairs of individual houses to construct a 20-City Composite Index and a 10-City Composite Index which are updated monthly. The indices have a base value of 100 which was set in January 2000.  Thus a current index value of 150 indicates there has been a 50% appreciation since that date for a typical home in the subject market.

Excerpts From The Release...

The U.S. National Home Price Index declined by 4.2% in the first quarter of 2011, after having fallen 3.6% in the fourth quarter of 2010. The National Index hit a new recession low with the first quarter's data and posted an annual decline of 5.1% versus the first quarter of 2010. Nationally, home prices are back to their mid-2002 levels.

Twelve of the 20 MSAs and the 20-City Composite also posted new index lows in March. With an index value of 138.16, the 20-City Composite fell below its earlier reported April 2009 low of 139.26.  Minneapolis posted a double-digit 10.0% annual decline, the first market to be back in this territory since March 2010 when Las Vegas was down 12.0% on an annual basis.

"This month's report is marked by the confirmation of a double-dip in home prices across much of the nation. The National Index, the 20-City Composite and 12 MSAs all hit new lows with data reported through March 2011. The National Index fell 4.2% over the first quarter alone, and is down 5.1% compared to its year-ago level. Home prices continue on their downward spiral with no relief in sight." says David M. Blitzer, Chairman of the Index Committee at S&P Indices. "Since December 2010, we have found an increasing number of markets posting new lows. In March 2011, 12 cities - Atlanta, Charlotte, Chicago, Cleveland, Detroit, Las Vegas, Miami, Minneapolis, New York, Phoenix, Portland (OR) and Tampa - fell to their lowest levels as measured by the current housing cycle. Washington D.C. was the only MSA displaying positive trends with an annual growth rate of +4.3% and a 1.1% increase from its February level."

"The rebound in prices seen in 2009 and 2010 was largely due to the first-time home buyers tax credit. Excluding the results of that policy, there has been no recovery or even stabilization in home prices during or after the recent recession. Further, while last year saw signs of an economic recovery, the most recent data do not point to renewed gains."

The table below summarizes the results for March 2011. The S&P/Case-Shiller Home Price Indices are revised for the 24 prior months, based on the receipt of additional source data.

In the midst of all these falling prices and record lows, Washington DC was the only city where home prices increased on both a monthly (+1.1%) and annual (+4.3%) basis. Seattle was up a modest 0.1% for the month, but still down 7.5% versus March 2010.

S&P/Case-Shiller reports data on both a seasonally adjusted and non-adjusted basis but recommends using the latter as being a more reliable indicator.  We have used only the non-adjusted data in compiling this summary.

The National Association of Realtors® (NAR) released its April Pending Home Sales Index (PHSI) today.  The index is said to be a leading indicator for the housing sector; it measures sales activity based on sales of single-family homes, coops and condos. The data reflects contracts but not closings, which normally occur with a lag time of one or two months.

Pending home sales fell in April with regional variations following increases in February and March, with unusual weather and economic softness adding to ongoing problems that are hobbling a recovery, according to the National Association of Realtors®. This is a reversal from the March Pending Home Sales report which indicated momentum was beginning to build as the summer months approached. WATCH THE VIDEO

Reuters Quick Recap...

RTRS - U.S. APRIL PENDING HOME SALES INDEX -11.6 PCT (CONSENSUS -1.0 PCT) TO 81.9 

RTRS - U.S. APRIL PENDING HOME SALES -26.5 PCT FROM APRIL 2010

Excerpts from the Release....

The Pending Home Sales Index, a forward-looking indicator based on contract signings, dropped 11.6 percent to 81.9 in April from a downwardly revised 92.6 in March. The index is 26.5 percent below a cyclical peak of 111.5 in April 2010 when buyers were rushing to beat the contract deadline for the home buyer tax credit.

The PHSI in the Northeast rose 1.7 percent to 64.5 in April but is 33.4 percent below a year ago. In the Midwest the index fell 10.4 percent to 74.1 and is 30.2 percent below April 2010. Pending home sales in the South dropped 17.2 percent to an index of 91.3 in April and are 27.0 percent below a year ago. In the West the index declined 8.9 percent to 89.1 and is 16.9 percent below April 2010.

Lawrence Yun, NAR chief economist, said the dip in contracts may be due to temporary factors. “The pullback in contract signings is disappointing and implies a slower than expected market recovery in upcoming months,” he said. “The economy hit a soft patch in April from sharply rising oil prices, widespread severe weather with the heaviest precipitation in 20 years, and a sudden rise in unemployment claims.”

Yun notes the growth in retail sales slowed measurably in April, while sales at furniture and home furnishing stores declined sharply. “Nonetheless, the magnitude of the fall in pending home sales is larger than can be implied by broad economic factors, so we need to see if it’s just a one-month aberration.”

Yun said tight credit is the primary long-term factor holding back the market. “No doubt the continuing excessively tight mortgage underwriting process is making the housing market recovery unnecessarily slow,” he said. “Lenders and bank regulators need to be mindful of the historically low default rates among mortgage borrowers of the past two years. A robust economic and housing market recovery cannot occur as long as banks continue to hold onto huge cash reserves.”

“We simply have to get back to sound, common-sense lending standards to provide mortgages to creditworthy borrowers who are buying homes well within their means. Bank balance sheets show rising cash reserves and declining loan balances – it’s time to loosen the purse strings,” Yun added.

“Even with very favorable affordability conditions, job growth and a pent-up demand from abnormally low household formation during the past three years, the recovery will continue to be uneven and sluggish given the ongoing credit constraints,” Yun said.

The Republican led House Financial Services Committee has drafted legislation that would, among other things, raise the FHA down-payment requirement to 5 percent and prohibit borrowers from financing their closing costs.

The draft legislation, ‘‘FHA-Rural Regulatory Improvement Act of 2011’’, was discussed today in a House Subcommitte hearing entitled "Legislative Proposals to Determine the Future Role of FHA, RHS and GNMA in the Single-and Multi-Family Mortgage Markets".

In a formal release, the House Financial Services Committee's Republican Chairman Spencer Bachus touted the bill as a coming at an important time in history, “This hearing and legislative proposal come at a pivotal moment, as the Committee debates the future of the mortgage finance system, and in particular, government guarantee programs that could expose taxpayers to significant losses.”

Industry advocates were quick to respond to the proposal as a move in the wrong direction.  Michael Berman, Chairman of the Mortgage Bankers Asssociation, explained that down-payments are not the best indicator of payment default. Berman said,  "Recently, policymakers have focused on required minimum down-payments as a measure of what factors are necessary to create sound lending practices. While down-payment certainly impacts default risk, other compensating factors, particularly full documentation of conservative loan products, are more influential mitigating factors."

Berman went on to share the MBA's opinion on the matter, saying, "The current minimum down-payment of 3.5 percent for borrowers with credit scores of 580 or above and 10 percent for borrowers with credit scores of 579 and below permits borrowers to have appropriate “skin in the game” while providing credit-worthy homebuyers with an option for entering the purchase market. Maintaining the existing minimum down-payment requirements, while requiring strong underwriting standards, such as full documentation and income verification, allows borrowers to responsibly become, and stay, homeowners."

The MBA isn't the only industry group to oppose the down-payment hike. Ron Phillips, President of the National Association of Realtors, shared similar sentiments in his prepared remarks. "NAR strongly opposes increasing the down-payment for FHA. The correlation between down-payment and loan performance is significantly less important than the linkage to strong underwriting, which FHA continues to have. FHA’s foreclosure rate remains less than conventional mortgages, so we don’t believe changes to the down-payment would do anything but disenfranchise many creditworthy homebuyers".

Not all feelings were mutual though. The Cato Institute, a D.C. think tank devoted to limiting government participation in free markets, believes a combination of poor credit history and low down-payment requirements  have resulted in "tremendous losses" for private mortgage investors and the FHA. In its prepared testimony Cato said, "Given the relatively “safe” features of an FHA loan, we do not have to guess about loan characteristics driving the borrower into default. We know it is equity and credit history that drives losses."

Cato outlined a variety of FHA program reforms it believes must be implemented immediately to ensure taxpayers are exposed to minimal risk.  These reforms include:

• Immediately require a 5 percent cash down-payment on the part of the borrower.
• Require FHA to allow only reasonable debt-to-income ratios.
• Restrict borrower eligibility to a credit history that is equivalent to no worse than a 600 FICO score.
• Require pre-purchase counseling for borrowers with a credit history that is equivalent to a FICO score between 600 and 680.
• Require a 10 percent down-payment, immediately, for borrowers with a credit history equivalent to below a 680 FICO score.
• Borrower eligibility should also be limited to borrowers whose incomes do not exceed 115 percent of median area income, so as to mirror the requirements of section 502(h)(2), as amended, of the Housing Act of 1949.

Besides raising the down-payment requirement, the proposed legislation would also cement  the reduction of current "high-cost" loan limits. The maximum loan limits for Fannie Mae, Freddie Mac, and FHA are currently $417,000 with a temporary limit of up to $729,750 for one-unit properties in high-cost areas. The temporary high-cost area limit was first set in the Economic Stimulus Act of 2008, and was extended in subsequent legislation. It expires on September 30, 2011. Without the extension, the high-cost loan limit ceiling would revert back to the limits established under the Housing and Economic Reform Act (HERA), a maximum of $625,500 in high-cost areas.

The Obama administration already stated in its white paper that it will not support another extension of the higher loan limits, but the MBA believes the higher limits should be maintained until the housing market stabilizes and the private market shows more signs that demand has returned. MBA  urged such legislation to be enacted well before October 1, 2011, in order to avoid certain market disruptions that will, because of rate locks, occur within 90 days of the current limits expiring. The National Association of Home Builders echoed that perspective. 

NAHB First Vice Chairman Barry Rutenberg, a home builder from Gainesville, Fla.,  told the House Financial Services Subcommittee, "Counties across the country would see their loan limit reduced by tens of thousands of dollars, placing further downward pressure on home prices and impairing the ability of borrowers to use FHA-insured mortgages to purchase new homes,"

To keep FHA, Fannie Mae and Freddie Mac loan limits at their current levels, NAHB called on Congress to support H.R. 1754, the Preserving Equal Access to Mortgage Finance Programs Act, a bipartisan measure sponsored by Reps. Gary Miller (R-Calif.) and Brad Sherman (D-Calif.).

The draft legislative proposal will require a full Committee vote before it is formally introduced to be voted on by the entire house.  Such measures would not be expected to pass the Senate.

Federal Reserve Governor Elizabeth Duke told an audience that while financial education has always been important in helping consumers make better economic decisions, the recent economic crisis has shifted the playing field, making financial education even more critical.

Duke spoke at a conference on the "Future of Life-Cycle Saving and Investing" co-sponsored by Boston University School of Management and the Boston Federal Reserve Bank. 

Because of the financial crisis, many families have fewer financial resources and options. As a result the pace and timing of their saving and investing life cycle have been disrupted. For example, unemployment levels among recent graduates are high and starting salaries have declined.  This means that the young will have to delay the start of saving and investing and they are living at home longer, often disrupting their parents' budgets.

Many consumers who should be saving for retirement are doing the opposite. A Vanguard study showed that hardship withdrawals from 401(k)s increased by 49 percent between 2005 and 2010 and other types of withdrawals increased by 56 percent.

At the same time, the responsibility for retirement savings is shifting from the employer to the employee and individuals are being forced to change retirement plans. The Social Security Administration reports that in 2009 and 2010, the proportions of persons claiming benefits at age 62 began to rise after several years of decline most likely because of the weak job market. "Opting to receive a smaller social security annuity earlier in life is just one of many hard decisions Americans have had to make in order to balance their short-term and long-term financial needs," Duke said.  All of this makes it more important that individuals have an understanding of what they need in retirement and their investment options.

Disruptions make the always difficult task of managing one's longevity risk harder and require a level of financial knowledge other generations have not needed.  Millions of older households will need to assess their pension distributions and make decisions about payout options for their defined benefit plans or about purchasing of annuities.  Younger workers, who will probably not have pensions, will face complicated decisions about what they will need in retirement and how to get there; all done in a world of increasingly more complex retirement products.

"In short," Duke told the audience of educators, "your efforts to identify, address, and meet the financial education needs of consumers in all stages of the life-cycle have never been more urgent."

The financial crisis has changed all of our assumptions about the future and consequently consumer behavior is also changing.  It is unclear whether these changes represent temporary or more permanent shifts in thinking and planning for the future but, as an example, consumers are continually changing their attitudes toward homeownership as the housing crisis evolves along with developments in the broader economy. FULL STORY

Consumers appear to be increasingly disconnected from mainstream financial services; more likely to use alternative products such as reloadable stored-value cards rather than credit cards.  These don't carry the same federal protections as credit or debit cards and do not establish a relationship with a financial institution for other purposes such as checking accounts or auto loans.

"As more and more new products are introduced to the financial marketplace, it becomes more important for consumers to be able to evaluate and compare products' benefits and potential costs," Duke said.   

The basic skills for navigating the financial world are developed in school so it is important to include skills in numeracy, language arts and decision making in curriculum and measure them by testing.  "I also think that the work many of you are doing to make financial lessons more appealing to school aged children is extremely important given the competition for attention from media and web-based entertainment and games."

Financial education is a life-long endeavor.  Consumers need clear and relevant financial information at critical "teachable" moments such as when buying a car or planning for retirement.  Educators have to identify as many of these moments as possible and determine how to best support positive outcomes as those moments.

How financial education is delivered has a significant impact on its effectiveness.  New technologies present exciting opportunities to deliver timely financial lessons and the technology such as apps for smart phones is making it possible to get information instantly.  Duke said she is particularly interested in how technology can better serve lower-income populations who might be more interested in stretching their paycheck than in investing it.

Duke cited several studies that evaluated the effectiveness of specific education programs but said "the fact is that we have very limited data on how effective financial education is in improving financial well-being. The Financial Literacy and Education Commission, of which the Federal Reserve is a member, has only recently developed a core set of financial competencies, and has yet to establish the knowledge, skills, and behaviors that will meet these competencies."  She suggested the need to answer some important research questions:

• What do people need to know to improve their long-term economic well-being and how does that vary by demographic groups?
• How do people obtain and process financial information? What sources do they use? Do outcomes vary by the source or timing of the information?
• Can we merely impart knowledge to improve outcomes or do we need to change consumer behavior as well? How can policymakers do this?
• How should we measure financial literacy to evaluate its impact on financial outcomes and predict future behavior and well-being?

Duke concluded by stressing the effect decisions about saving and investing have on the financial well-being of individual consumers and our national economic outcomes.  Comprehensive, effective regulation of consumer products is the first step in ensuring positive outcomes for consumers, but consumers must also be equipped with the tools and information to make the best choices. For all the attention and resources that have been devoted to financial education we have very little information about the effectiveness of our effort. 

GIVE FEEDBACK ON NEW MORTGAGE DISCLOSURES

Federal Reserve Governor Elizabeth Duke told an audience that while financial education has always been important in helping consumers make better economic decisions, the recent economic crisis has shifted the playing field, making financial education even more critical.

Duke spoke at a conference on the "Future of Life-Cycle Saving and Investing" co-sponsored by Boston University School of Management and the Boston Federal Reserve Bank. 

Because of the financial crisis, many families have fewer financial resources and options. As a result the pace and timing of their saving and investing life cycle have been disrupted. For example, unemployment levels among recent graduates are high and starting salaries have declined.  This means that the young will have to delay the start of saving and investing and they are living at home longer, often disrupting their parents' budgets.

Many consumers who should be saving for retirement are doing the opposite. A Vanguard study showed that hardship withdrawals from 401(k)s increased by 49 percent between 2005 and 2010 and other types of withdrawals increased by 56 percent.

At the same time, the responsibility for retirement savings is shifting from the employer to the employee and individuals are being forced to change retirement plans. The Social Security Administration reports that in 2009 and 2010, the proportions of persons claiming benefits at age 62 began to rise after several years of decline most likely because of the weak job market. "Opting to receive a smaller social security annuity earlier in life is just one of many hard decisions Americans have had to make in order to balance their short-term and long-term financial needs," Duke said.  All of this makes it more important that individuals have an understanding of what they need in retirement and their investment options.

Disruptions make the always difficult task of managing one's longevity risk harder and require a level of financial knowledge other generations have not needed.  Millions of older households will need to assess their pension distributions and make decisions about payout options for their defined benefit plans or about purchasing of annuities.  Younger workers, who will probably not have pensions, will face complicated decisions about what they will need in retirement and how to get there; all done in a world of increasingly more complex retirement products.

"In short," Duke told the audience of educators, "your efforts to identify, address, and meet the financial education needs of consumers in all stages of the life-cycle have never been more urgent."

The financial crisis has changed all of our assumptions about the future and consequently consumer behavior is also changing.  It is unclear whether these changes represent temporary or more permanent shifts in thinking and planning for the future but, as an example, consumers are continually changing their attitudes toward homeownership as the housing crisis evolves along with developments in the broader economy. FULL STORY

Consumers appear to be increasingly disconnected from mainstream financial services; more likely to use alternative products such as reloadable stored-value cards rather than credit cards.  These don't carry the same federal protections as credit or debit cards and do not establish a relationship with a financial institution for other purposes such as checking accounts or auto loans.

"As more and more new products are introduced to the financial marketplace, it becomes more important for consumers to be able to evaluate and compare products' benefits and potential costs," Duke said.   

The basic skills for navigating the financial world are developed in school so it is important to include skills in numeracy, language arts and decision making in curriculum and measure them by testing.  "I also think that the work many of you are doing to make financial lessons more appealing to school aged children is extremely important given the competition for attention from media and web-based entertainment and games."

Financial education is a life-long endeavor.  Consumers need clear and relevant financial information at critical "teachable" moments such as when buying a car or planning for retirement.  Educators have to identify as many of these moments as possible and determine how to best support positive outcomes as those moments.

How financial education is delivered has a significant impact on its effectiveness.  New technologies present exciting opportunities to deliver timely financial lessons and the technology such as apps for smart phones is making it possible to get information instantly.  Duke said she is particularly interested in how technology can better serve lower-income populations who might be more interested in stretching their paycheck than in investing it.

Duke cited several studies that evaluated the effectiveness of specific education programs but said "the fact is that we have very limited data on how effective financial education is in improving financial well-being. The Financial Literacy and Education Commission, of which the Federal Reserve is a member, has only recently developed a core set of financial competencies, and has yet to establish the knowledge, skills, and behaviors that will meet these competencies."  She suggested the need to answer some important research questions:

• What do people need to know to improve their long-term economic well-being and how does that vary by demographic groups?
• How do people obtain and process financial information? What sources do they use? Do outcomes vary by the source or timing of the information?
• Can we merely impart knowledge to improve outcomes or do we need to change consumer behavior as well? How can policymakers do this?
• How should we measure financial literacy to evaluate its impact on financial outcomes and predict future behavior and well-being?

Duke concluded by stressing the effect decisions about saving and investing have on the financial well-being of individual consumers and our national economic outcomes.  Comprehensive, effective regulation of consumer products is the first step in ensuring positive outcomes for consumers, but consumers must also be equipped with the tools and information to make the best choices. For all the attention and resources that have been devoted to financial education we have very little information about the effectiveness of our effort. 

GIVE FEEDBACK ON NEW MORTGAGE DISCLOSURES

The Census Bureau and Department of Housing and Urban Development have released New Residential Sales data for April  2011.

New Residential Sales data provides statistics on the sales of new privately-owned single-family residential structures in the United States. Data included in the press release are (1) the number of new single-family houses sold; (2) the number of new single-family houses for sale; and (3) the median and average sales prices of new homes sold.

A house is considered sold when either a sales contract has been signed or a deposit accepted.   Included in our estimates are houses for which a sales contract is signed or deposit accepted before construction has actually started; for instance, houses sold from a model or from plans before any work has started on the footings or foundations.  These estimates also include houses sold while under construction or after completion.  This survey does not follow through to the completion ("closing") of the sales transaction, so even if the transaction is not finalized, the house is still considered sold. Preliminary new home sales figures are subject to revision due to the survey methodology and definitions used. The survey is primarily based on a sample of houses selected from building permits.

New residential sales estimates only include new single-family residential structures. Sales of multi-family units are excluded from these statistics.

Here is a Quick Recap from Reuters...

• RTRS - US APRIL SINGLE-FAMILY HOME SALES 323,000 UNIT ANN. RATE (CONS 300,000) VS MARCH 301,000 (PREV 300,000)
• RTRS - US APRIL SINGLE-FAMILY HOME SALES +7.3 PCT VS MARCH +8.3 PCT (PREV +11.1 PCT)
• RTRS - US APRIL HOME SALES NORTHEAST +7.7 PCT, MIDWEST +4.9 PCT, SOUTH +4.3 PCT, WEST +15.1 PCT
• RTRS - US APRIL NEW HOME SUPPLY 6.5 MONTHS' WORTH AT CURRENT PACE, LOWEST ONE YEAR, VS MARCH 7.2 MONTHS
• RTRS - US APRIL MEDIAN SALE PRICE $217,900, +4.6 PCT FROM APRIL 2010 ($208,300)
• RTRS - US HOMES FOR SALE AT END OF APRIL RECORD LOW 175,000 UNITS VS MARCH 180,000 UNITS

Excerpts from the Release....

Sales of new one-family houses in April 2011 were at a seasonally adjusted annual rate of 323,000.  This is 7.3 percent (±16.6%)* above the revised March rate of 301,000, but is 23.1 percent (±9.7%) below the April 2010 estimate of 420,000.

The median sales price of new houses sold in April 2011 was $217,900; the average sales price was $268,900. The seasonally adjusted estimate of new houses for sale at the end of April was 175,000. This is a record  low for new home inventory. Still, at the current pace of New Home Sales, it would take 6.5 months to clear that inventory.

Since we've been repeating ourselves when it comes to offering insight on the underlying fundamentals of record low New Home Sales numbers, we'll share some perspective from Wall Street economists.

From Reuters Instant View.....

RICHARD DEKASER, ECONOMIST, THE PARTHENON GROUP, BOSTON

"It's a positive surprise. Sales activity continues to bounce along the bottom. There is no evidence of a second leg down for housing, but there is no persuasive evidence of a rebound. This won't significantly alter lenders' behavior. The inventory of homes is at extreme scarce levels against the backdrop of a glut of existing homes. This is auguring well for future building activity. When does this happen? It's already happening, but you need a microscope to discern."

DAVID ADER, SENIOR GOVERNMENT BOND STRATEGIST, CRT CAPITAL GROUP, STAMFORD, CONNECTICUT:

"A bigger than anticipated gain to new home sales and a price gain (against three prior months of negative figures) so a firmer, if volatile, report."

MICHAEL GAPEN, SENIOR U.S. ECONOMIST, BARCLAYS CAPITAL, NEW YORK, NEW YORK:

"Certainly this was a better-than-expected report, but at the same time I am hesitant to read too much into it. Total home sales remain well below their longer term healthy levels, but nevertheless it is above the 286k average pace observed in the first quarter. "The lower activity in homes sales early in Q1 was largely due to adverse weather so it makes sense that we are seeing a rebound from those levels. Another positive is the supply of homes fell. If the months' supply drops to 4 months that would be pre-crisis levels, so even at the low level of sales, inventory is quite lean and so at some point the home builders will have to get out and start building again."

MICHAEL YOSHIKAMI, PRESIDENT AND CHIEF INVESTMENT STRATEGIST AT YCMNET ADVISORS IN WALNUT CREEK, CALIFORNIA

"I don't think there's much to make of this. There's still a tremendous overhang in the housing market, and while new home sales are starting to percolate, that doesn't change the fact that we still have such huge inventory. But since the number was about in line with expectations, investors will be focused on such other issues as Europe or corporate news."

GARY THAYER, CHIEF MACRO STRATEGIST, WELLS FARGO ADVISORS, ST. LOUIS, MISSOURI:

"It's a good number, better than expected. It suggests maybe we're beginning to see some signs of stabilization in housing, but it's too early to say we've bottomed out. We still have a lot of existing homes for sale and that excess inventory is likely to hang over the new home market for the better part of a year. And home builder sentiment remains very negative. It does not look as if builders feel we have turned the corner yet."

PIERRE ELLIS, SENIOR ECONOMIST, DECISION ECONOMICS, NEW YORK:

"Home sales were stronger than expected but that's not saying much, given that the level is still low. But it's encouraging in the sense that it was broad-based across regions and it pulled the inventory of homes downward."

PATRICK NEWPORT, ECONOMIST, IHS GLOBAL INSIGHT, LEXINGTON, MASSACHUSETTS:

"The caution note is that this release tends to be volatile. The number is still good but it is flat at the bottom. Builders are having less problems selling their homes. It's too early to say we are at a turning point for housing. You have to wait three to four months of positive months before you can say things are getting better."

LINDSEY PIEGZA, ECONOMIST, FTN FINANCIAL, NEW YORK

"We did beat consensus, which certainly is a positive spin to this report. On the other hand, if you look at a chart of new home sales we really haven't gained any ground since the end of 2009. We're not losing any ground here but we're not making any positive headway. Demand is still tepid. Consumers are still struggling to make their monthly payments. We're still dealing with the same negative overhangs we've been dealing with for quite some time. "The market really doesn't read into housing like it used to because it doesn't mean what it used to in terms of supporting the economy and supplementing income. Unless we saw a very clear improvement in trend or decline in trend I don't think the market's going to respond to a housing report."

VIMOMBI NSHOM, ECONOMIST, IFR ECONOMICS, A UNIT OF THOMSON REUTERS:

"New homes sales, just like every other housing indicator, has been on a roller coaster ride for 2011--rising for the past two months after having fallen in the two prior. The alternating patter will most likely persist for the rest of year. Every region experienced sales gains helping to push down the number of new homes available for purchase to 175k --a record low-- and the months' supply of homes down nearly 10% to 6.5%. The inventory breakdown is a double-edge sword as the lighter stock means sales are correcting backlogs, but the low numbers also show the damage still prevalent in the market given builders' adversity toward constructing homes no one is going to buy--especially given the price premium over previously-owned homes."