Home sales rose by 9.6% MoM in July after an upward-revised 9.1% increase in June. Home sales rose in every region but the Midwest. Although still off 13.4% YoY, this represents the fourth consecutive increase in the pace of new home sales. When viewed in combination with similar statistics for existing home sales it all suggests to us that the uptick in housing is not a fluke. Inventory overhang target achieved for SETQ At 7.5, the months’ supply of new homes on the market is now down below eight months for the first time since May 2007. This is almost 5 months below the peak of 12.4 months we saw in January and, at this pace, is fast approaching a normal level of between 5 and 6 months. Remember that new single-family housing inventory is one of the four metrics we track in the monthly SETQ report. The number we needed to see was eight months, and that has now been achieved. Like the sales data, this is also consistent with the existing home inventory data where the months’ supply is now 9.4 months versus a peak of 11.3 months seen in April 2008. Sales data confirm the recent home price gains witnessed in the Case-Shiller data. As of June that data showed 9 of 20 regions posting positive 3-month annualized rates of growth and showed no region where the 3-month annualized rate was below the year-over-year rate. We believe this is a sign that the
bottoming process is underway across the country.

We expect housing will add to growth beginning this quarter and continuing throughout the remainder of this year and into 2010. While pockets of weakness in activity and pricing can be expected to persist, the trend is toward more activity, not less.

Purchase applications rise for the fourth straight week
Mortgage applications rose 7.5% for the week ending August 21 after a 5.6% jump the week before. What is critical, in our view, is that applications for purchase rose 1.0% after a 3.9% jump the week before in what was the fourth consecutive weekly increase. Purchase applications may be getting a boost from the government’s temporary first-time homebuyer tax credit, but clearly this is still supportive of the view that housing is stabilizing. Refi applications surged 12.7% in the latest week. Mortgage rates, however, did tick up. The contract rate on 30- year mortgages rose to 5.24% from 5.15% the week before but was still lower than what we saw through most of June and July.