The housing market cooled slightly this month. Newspaper accounts accurately reported rising listings in New York, Washington, D.C., Florida and California, yet listings in those markets still remain low by historical standards. Consumer confidence plunged, as it always does after a major international disaster (Hurricane Katrina).

The housing market cooled slightly this month. Newspaper accounts accurately reported rising listings in New York, Washington, D.C., Florida and California, yet listings in those markets still remain low by historical standards. Consumer confidence plunged, as it always does after a major international disaster (Hurricane Katrina). Rumors of slowing new-home sales in California and Florida permeated the industry, yet our phone calls to local sales offices, real estate agents and market consultants found that sales and traffic had only slightly slowed.

Is this the beginning of the gradual slowdown forecast by most analysts? It could be, but this type of slowing has occurred at least twice per year over the last five years, so it is too soon to declare a trend.

To help stay on top of market conditions, we added a new leading indicator from the National Association of Realtors to our U.S. Housing Market Statistics. The NAR’s Pending Home Sales Index, which is leading because it is based on the number of sales contracts signed, shows that the number of sales contracts written has flattened over the four months ending in August (latest available data), which means existing-home sales should flatten or decline over the coming months. Given the level of activity, this supports the thesis of a gradual slowdown.

Our grading system of the economy and the housing market is a “bell curve” model, with statistics at an all-time high receiving an “A,” statistics near the long-term average receiving a “C,” and the worst times ever receiving an “F.” In this grading system, it is OK to be a “C” student.

Here is our current report card:

Economic Growth: C

The economy performed at its average pace, as retail sales declined from a six-year high the previous month. Employers have added 2.2 million new jobs over the last year, which is a growth rate of 1.7 percent. Initial indications of employment losses from Hurricane Katrina were more optimistic than originally feared. Inflation remained flat at 2.1 percent, which is still well below its historical average of 4.2 percent.

Leading Indicators: C

The leading indicator index is up 0.7 percent on an annualized basis over the last six months. The spread between the 10-year Treasury index and the Federal Funds rate continues to narrow, reaching 0.55 percent, its lowest value since April 2001. The four stock market indices we track (Dow Jones, S&P 500, NASDAQ and Wilshire 500) each returned less than 1 percent during September, while the S&P Super Homebuilding Index fell 3 percent. With more confidence in the outlook for stock investments in all sectors, we believe that some of the money invested in real estate over the last five years will be transferred to stock investments, making less capital available to the industry.

Mortgage Rates: B+

Despite an increase in both fixed rates and adjustable rates in September, the spread between the two continued to narrow for the sixth consecutive month, to 123 basis points. The average fixed mortgage rate was 5.91 percent, and the one-year adjustable mortgage rate was 4.68 percent at month’s end. The percentage of loans with an adjustable rate stood at 29 percent at month’s end.

Consumer Behavior: C

Consumer confidence fell nearly 20 points in September to 86.6, its lowest value in nearly two years. Hurricane Katrina, rising gas prices and concern about the job outlook contributed to the decline. The Present Situation Index and six-month Expectations Index also both fell in September, following an increase in August. With the horrible earthquake in Pakistan, we doubt that consumer confidence will rebound significantly this month.

Existing-Home Market: A

The existing-home market is performing at near-record levels. The NAR Median Home Price continued to climb, reaching $220,000. Annual sales volume increased to 7.3 million sales per year in August, with increases in the Northeast, West and Midwest and a slight decline in the South. The inventory of existing homes rose to 4.7 months, the most since November 2003. The number of mortgage applications to purchase a home remained high.

New-Home Market: B

Annualized new-home sales in August decreased to 1.24 million units, following a record level in July, and the median new-home price rose to $220,300. The Housing Market Index fell to 65 in September, its third month of decline, but still a solid indicator.

Housing Supply: B-

Annualized housing starts slid to just over 2 million units in August. Starts decreased 8.4 percent in the Midwest, 8.1 percent in the West and 8 percent in the Northeast, and increased 4.8 percent in the South. Single-family permits declined 1.3 percent to 1.67 million units. Housing starts is a very volatile statistic, as weather or other factors can make a significant impact.

John Burns is the founder of Real Estate Consulting in Irvine, Calif., which monitors changes in real estate market conditions and provides consulting services, including strategic planning, market research and financial analysis.

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