The credit crunch and mortgage meltdown couldn't have come at a worse time for the housing market. Now, not only is it difficult for builders to sell homes, it is even more difficult to get buyers qualified for financing, especially first-timers who often don't have much in the way of a down payment. Continued declines in sales, building permits, and housing starts suggest that the end is not yet in sight for the troubled housing market. Meanwhile, the struggles in the housing and financial sectors have spilled over into the broader economy, causing the major stock indices to ride a roller-coaster of volatility.

The fragile stock market could be sent into even more significant declines if any more bad news prompts large fund managers to flee equities. After hitting a milestone of closing above the 14,000 mark for the first time in mid-July, the Dow Jones Industrial Average has fallen as much as 1,200 points in subsequent weeks. The credit struggles go further than just people looking to buy a home. The broader lack of ability to finance merger and acquisition deals has a significant impact on the stock market and economy overall. This M&A activity has been a big driver of the strong gains in the stock market over the past several years.

Building permits in July declined 2.8% to a seasonally adjusted 1.4 million units–the lowest level since October 1996. Single-family permit issuance decreased slightly in July, dropping 2% from last month to a seasonally adjusted level of 1,003,000 permits issued. The number of single-family issuances in July was 24% lower than the level seen in July 2006, and 42% lower than the same month two years ago. The number of multifamily permits fell 8.2% from the previous month to 314,000, and is a 15% decline from a year earlier.

Seasonally adjusted sales of existing homes fell 0.2% in July to 5.8 million units, the lowest sales pace recorded since November 2002, and the fifth straight month that sales have declined. Existing-home sales are down 9% from the 6.3 million units sold in July 2006. Median existing home prices declined a slight 0.13% from June levels to $228,900; the median price is down 0.56% from the same year-ago period. Inventory of existing homes jumped to 9.6 months of supply at the current sales pace, while the number of existing homes for sale increased 5.1% to 4.6 million units. This is the most months of supply of existing homes since September 1991.

National average 30-year mortgage rates declined to 6.5% in the Sept. 6 Primary Mortgage Market Survey, released weekly by Freddie Mac. This was, in part, thanks to a half-point cut in the discount rate by the Federal Reserve. There are likely to be more rate cuts to come in an effort to stabilize the credit situation and stave off deterioration in economic growth. In minutes from an Aug. 7 meeting, the Federal Reserve reflected a change in tone, declaring that concerns over slowing economic growth outweighed risks from higher inflation.

–Jonathan Dienhart heads the Published Research Group for Hanley Wood Market Intelligence, a division of ProSales' parent company, Hanley Wood LLC.

Market Spotlight: New Jersey

Most Americans may think of New Jersey as one of the smaller states in the union, but with nearly 9 million residents, it's the 12th most populous state. New Jersey has distinct regional characteristics that are more common in larger states. In fact, much of New Jersey often is considered a suburb of either New York or Philadelphia, although plenty of natives who live in the central portion of the Garden State probably would argue they have little in common with either.

In terms of housing, the state offers a broad diversity of products and styles for both new and existing homes. The New Jersey housing market has been hurt by the housing downturn. Just under 12,000 new residential construction permits were issued in the first six months of 2007, compared to nearly 17,000 a year ago. A shift to attached product is under way. It is a function of affordability and land availability and is reflected in the attached sales figures, which have fared better during the downturn than single-family homes.

New-home sales have been sluggish in New Jersey in recent months, and as of the first six months of 2007 were down 23% compared with the same period in 2006. Condominium units have fared better, down only 8% from a year ago, while single-family new-home sales are off by more than 30%. In subdivisions of 10 units or more, there were 5,275 sales so far this year as of June, compared with 6,841 in the same period a year ago.

On a regional basis, the north, central, and southern portions of New Jersey each have different obstacles to development as well as varied economic concentrations. The northern part of the state acts as a suburb of New York, and the Port of Newark is an economic nexus for the region. Northern New Jersey has a significant amount of new condominiums, a good number of which are being developed on infill sites on old industrial parcels. The north faces some challenges to future development because of restrictions stemming from the Highlands Act.

Meanwhile, central New Jersey has become somewhat economically independent from the north and south, partly because of the area's concentration of large pharmaceutical companies, such as Bristol-Meyers Squibb, Johnson & Johnson, and Merck & Co. In the southern portion of the state, which houses many Philadelphia commuters, single-family homes are more common than in the north. There are also some restrictions to development in the protected Pinelands area. South New Jersey is home to some of the most fertile farmland in the country, and often the proposed redevelopment of these farmlands generates controversy.

Hanley Wood Market Intelligence provides data and consulting services on residential real estate development and new-home construction, including analysis of key trends impacting the housing market through its proprietary software products and research reports. Contact: 800.639.3777.