The National Association of Realtors released its housing affordability ratio for January and it surged for the sixth consecutive month to 166.8 in January from 153.2 in December. Yet over this sixth period of rising affordability we saw new homes go from 505K units annualized in July, to 448K, to 434K, to 404K, to 380K, to 344K, and all the way down to a record low of 309K units in January. This jump in affordability also came in a month that saw homebuilder sentiment crater to a record low and mortgage applications for purchase run nearly -30% YoY. Affordability is not the issue. The issues are first, a weakening in the demand for housing. At the margin, folks would rather rent than own an ever depreciating asset class. Second, down payment requirements are between 20-30% and there are few who have $70-80,000 lying around to put down on a house. And finally, banks are continuing to tighten their credit standards for residential mortgages as the latest Fed Senior Loan Officer Survey attests.

Nonresidential and public construction fell in January – tumbling by 4.3%: The only component on nonresidential investment to post a M/M gain was education. With rising vacancy rates, falling utilization and tight credit conditions, nonresidential construction activity is expected to fall meaningfully as the year progresses. State and local construction spending fell by 1.9%, while federal government construction, a small and highly volatile component, declined by 6.6%. Looking ahead, budget problems at the state and local level will likely curtail construction projects.