Data Helps Restore Confidence
A slew of positive reports on the housing and economic fronts helped the markets regain some confidence in the past week. Preliminary Growth Domestic Product estimates showed the U.S. economy growing at a surprisingly healthy pace while the Consumer Confidence Index posted its second straight monthly gain. Leading economic indicators, however, posted a noticeable drop in July which indicates that they may weaken in the coming months. GDP growth in the second quarter may be somewhat misleading.

The positive effects of the government’s economic stimulus package along with the weaker U.S. dollar helping to ramp up exports and decrease import activity for the quarter may have skewed economic growth to be more positive than it may be. It will also be important to keep an eye on Tropical Storm Gustav in the next few days as it works its way towards the Gulf Coast. While crude oil prices have not traded higher in anticipation for any production outages, any significant damage on oil pipelines will cause crude prices to jump higher.

Housing data in the past week turned out to be quite positive with sales of both the new and existing homes posting monthly gains. This is the first time since July of last year that both new and existing home sales posted increases in the same month. While it is far too early to say we are at the bottom of the new home market, the sales figures released this week a certainly a move in the right direction. New home sales in July rebounded off their lowest levels seen since September 1991 in June and inventory continues to fall. These combined trends will improve the supply/demand imbalance in the market.

The Economy
Preliminary estimates for second quarter GDP showed a surprising jump in economic growth to 3.3% from 1.9% in the advance estimate. Preliminary second quarter growth is significantly stronger than final first quarter estimates of 0.9% and final fourth quarter 2007 GDP figures which showed the economy contracting at a rate of 0.2%.

Leading indicators posted a 0.70 point drop in July, although the index had slight upward revisions for the previous two months. The leading index now stands at 101.20, down from an upwardly revised June figure of 101.90. The Index is down 0.90 points from its levels six months ago when it was 102.10. Only three out of the ten components showed gains compared to both last month and the previous six-month period.

Consumer confidence increased for the second straight month in August after falling for the previous seven consecutive months. The Consumer Confidence Index was at its lowest levels since February 1992 in June before rebounding in the last two months. The Index increased to 56.9 in August from 51.9 in July which represents a 5.0 point gain from the previous month. This was the largest monthly increase in the CCI since July 2007.

Housing Market
National average mortgage rates declined to 6.40% in the latest Primary Mortgage Market Survey released weekly by Freddie Mac on August 28th. This is the second straight week that rates have declined. In the week ending August 22nd, the MBA’s seasonally-adjusted Purchase Mortgage Index increased slightly to 315.9 from 314.0 in the previous week. The latest figure reflects a 0.6% increase from last week but a 25.5% drop from the same period last year.

Both new and existing home sales increased in July. New home sales in July increased from the lowest levels seen since September 2001 last month. Sales increased 2.4% in July to a seasonally-adjusted 515,000 homes, up from a revised June figure of 503,000. Sales for the previous three months, however, were revised lower by 46,000 units. The number of new homes for sale continued to decline as builders pulled back production. New home inventory declined to 416,000 units which is the lowest it has been since October 2004. In July, median new home prices increased for the second straight month to $230,700.

Annualized sales of total existing homes in July rebounded to its strongest pace since February. Sales increased 3.1% from June levels to 5,000,000 units. Sales of existing homes are down 13.2% from the 5.76 million units in July 2007. Median existing home prices in July declined to $212,400 from $215,100 in June. This is the first time since February that median existing home prices posted a monthly decline. The number of existing homes for sale increased 3.87% to 4.7 million units. At the current sales pace, there are 11.2 months of existing homes supply on the market which is an all-time high.