Almost all of the news this month was positive. GDP, job growth, productivity and leading indicators all improved. Consumer confidence rebounded, mortgage rates declined, and new-home sales surged. Sales continue to soften in some markets, but this is not true nationally. The most positive news came from Fannie Mae and Freddie Mac.

The two mortgage giants announced that they will raise the conforming loan amount from $359,650 to $417,000 in 2006, which they claim will allow an additional 466,326 homeowners to become eligible for a conforming loan. Rates on “jumbo” non-conforming loans are typically between a quarter-and-a-half-point higher than conforming rates. The conforming mortgage limits have been rising much faster than home prices.

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 employment sector improved in November, adding more than 1.9 million new jobs over the last year, a growth rate of 1.5 percent. Unemployment remained flat at 5 percent. Productivity increased 4.7 percent in the third quarter. Inflation rose slightly to 2.1 percent, which is still well below its historical average of 4.2 percent.

Leading Indicators: C

The leading indicator index is up 2.4 percent on an annualized basis over the last six months. The spread between the 10-year Treasury index and the federal funds rate narrowed slightly to 0.45 percent. The stock market improved in November, with each of the indices that we track (Dow Jones, S&P 500, NASDAQ and Wilshire 500) retuning between 4 percent and 8 percent on an annualized basis. The S&P Super Homebuilding Index rebounded in November, returning 10 percent during the month and 35 percent over the last 12 months.

Mortgage Rates: B+

Both fixed rates and adjustable rates rose in November, while the spread between the two continued to narrow for the eighth consecutive month, to 114 basis points. The average fixed mortgage rate rose to 6.28 percent, and the one-year adjustable mortgage rate was 5.14 percent at month’s end. The percentage of loans with an adjustable rate stood at 33 percent at month’s end, the highest value since June.

Consumer Behavior: C+

Consumer confidence bounced back in November to 98.9, following two months of decline. Falling gas prices and an improving job outlook contributed to the increase. Consumer sentiment improved during the month to 81.6, returning to pre-Katrina levels.

Existing-Home Market: A-

The NAR median home price rose in October to $218,000. Annual sales volume decreased to 7.1 million sales per year, with declines in each region of the country. The inventory of existing homes increased slightly to 4.9 months. The pending home sales index fell in October, but remains very strong at 123.8.

New-Home Market: B

Annualized new-home sales in October rose to an all-time high of 1.42 million units, and the median new-home price rose to $231,300. The Housing Market Index fell to 60 in November. The supply of unsold homes fell to 4.3 months.

Housing Supply: C+

Annualized housing starts decreased to 2.01 million in October, with single-family starts decreasing 3.7 percent to 1.68 million. Total starts increased 1.7 percent in the Midwest and decreased 3.8 percent in the South, 9.6 percent in the Northeast and 15.5 percent in the West. Single-family permits decreased 4.9 percent to 1.68 million units.

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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