In conclusion, we need to “stay focused” and “stay tuned.” While big curveballs could be thrown at the housing business, the most likely scenario is that government intervention will make homes slightly harder to sell over the next few years.

There is plenty of short-term risk ahead. Focus on good locations where people want to live, and plan for having to sell homes to higher credit quality buyers. Stay more informed than ever because surprise announcements could impact consumer confidence and sales positively or negatively. In turn, that could dramatically affect home buying sales, volume and pricing.

Economic Growth............................................................................C-
Economic growth trends improved slightly this month, as several key metrics have ticked up recently. The real GDP growth rate improved from the second quarter, and retail sales continued to improve this month. The employment market continued to improve gradually as year-over-year employment growth increased again this month, while initial jobless claims decreased. In addition, personal income growth increased this month and inflation remains low.

Leading Indicators...........................................................................C-
The leading indicators for the economy are generally more positive than negative this month. The Leading Economic Index was down slightly but remains comfortably in positive territory. Also, the ECRI Leading Index became less negative once again. Stocks were up huge and corporate profits are still quite positive. The money supply increased slightly this month, which usually leads to more spending. Interest rates declined in October, indicating that lenders are less worried about defaults. The attitudes of those who would make hiring decisions captured in the Vistage CEO Confidence Index reflect improved confidence in continued economic growth. Temporary employment has increased by 23% year-over-year, yet the number of postings on Monster.com decreased. Stocks have had a solid month in October, effectively erasing losses incurred over the first eight months of the year. All four major indices we track – the Dow, S&P 500, NASDAQ, and Wilshire 5000 – were up in October and have increased even more year-over-year. However, the S&P Homebuilding Index declined in October. This index has been hammered recently and has declined 28% from the most recent peak in April as weaker than expected home builder orders and CEO commentary worried investors.

Affordability......................................................................................D+-
Affordability has rarely been better for entry-level buyers, and rarely worse for moveup buyers, who need to extract equity from their existing home. Mortgage rates remain historically low and home prices have dropped from unrealistic boom levels to entirely sustainable levels, with some markets even heading into “overcorrection” territory. Our housing-cost-to-income ratio continues to decline, now at 24.3%, and our JBREC Affordability index stands at a remarkable 0.0 (on a scale of 0 to 10, 0 being most affordable). The median home price to income has declined to 3.2, which is near the long-term historical norm and a level conducive to market health. Affordability continues to be bolstered by historically low mortgage rates. The 30-year fixed mortgage rate dropped to 4.23% and adjustable mortgage rates fell to 3.30%. The Fed’s overnight lending target rate remained at a range of 0.00% to 0.25%, which is the lowest level on record. The share of ARM applications decreased to 5.3% this month and is still far below the peak level of 35% of total applications in early 2005.

Consumer Behavior..........................................................................D+
Consumer behavior worsened slightly this month, with most metrics declining. The Consumer Sentiment Index and the Consumer Comfort Index both declined this month, while the Consumer Confidence improved modestly. The Misery Index increased, and net worth was down slightly, both in terms of growth rate (5.9%) and net worth per household ($477,380). However, consumers are saving more with a minor improvement in the personal savings rate to 5.8%, and consumer debt was down a bit with consumer credit per household decreasing to $7,327.

Existing Home Market.......................................................................D
The existing home market improved somewhat this month after worsening markedly due to the federal tax credit “hangover” that started in May. Seasonally adjusted annual resale activity increased to 4.53 million homes this month. On a rolling 12-month basis, sales have decreased 2% compared to the previous month, but have increased 6% year-over-year. The number of unsold homes dipped to 10.7 months of supply from 12.0 months, but remains well above the historical average of 7.3 months. The most encouraging metric may be pending sales. This measure had been trending downward, but has now risen for the past two months. Though still near a record low, the change in trend is positive. The number of inventory homes inched downward. The S&P/Case-Shiller U.S. National Home Price Index improved once again, and has returned to positive territory this quarter for just the second time since late 2006, increasing 3.6% year-over-year.

New Home Market..............................................................................D+
The new home market improved slightly this month. Builder confidence improved this month as the Housing Market Index increased to 16 from 15 one month ago. New home sales increased to 307,000 units on annualized basis. Coming off months of post-federal tax credit declines, this increase is a modest positive sign. It should be noted, however, that the sample size used by the Census Bureau to calculate new home sales is extremely small and the confidence interval consequently large. The median single-family new home price also increased to $223,800 and is up 2% year-over-year. The months of unsold homes metric decreased to 8.0 months, albeit it is still at a level well above the historical average.

Housing Supply...................................................................................F
Housing supply indicators worsened this month. New housing units were down, as were single-family starts to 436,000 units. Single-family permits increased this month to 406,000 units. All of these activity levels remain very low by historical standards. Vacancy rates in the U.S. have improved in recent quarters, but the majority of the U.S. remains oversupplied compared to history, with only six states undersupplied, all with small populations except Texas. The homeowner vacancy rate decreased this quarter to 2.5%, which is down from 2.6% last quarter.