According to a recruiting firm named Experience Inc (Boston), as starting salaries slump and housing costs rise, more than half of all college graduates are returning to their childhood bedrooms. More than 1 million American homes housed young adults in 2006, up 28% from 2004, according to research firm SRI Business Intelligence. And one of the interesting demographic items is that the parents in many cases are encouraging this.

Would you like a “free” car? The National Association of Home Builders' (NAHB) builder optimism index recorded the lowest seasonally adjusted scores for each of the months of April, May and June in the 22 years of the report. The numbers confirm that builders are struggling to entice potential customers to look at single family homes. In Florida Hovnanian Enterprises recently offered a free Mini Cooper car to new homeowners, although the company said they found many customers preferred lower prices, free options, or financing help instead of the car. New home builders are facing competition from existing homes, and price cutting may be the most effective response to rising inventories, according to NAR surveys. A recent survey by the NAHB found builders offering a wide menu of incentives: 57% offered optional appliances or other home features at no charge, 51% offered to pay some portion of the buyer's closing costs/fees, 28% offered to cover points on the origination of a mortgage, 19% offered to qualify the buyer at a lower initial mortgage rate, 17% offered to help buyers sell their current homes. Some builders offer a trade-in option as an incentive. 

The last time builders employed such tactics was in the early 1990s, during the last big housing bust. Builders are anxious to clear inventory from tracts of newly built homes, especially since a group of empty units in a given community doesn't look good and can precipitate a price collapse.  Order cancellations have ballooned to nearly 30% of all new homes, up from just 1% during the height of the housing boom in January 2005.

The market improved nicely yesterday with the yield on the 10-yr hitting 4.99% (this morning it is at 5.0%) The ISM Manufacturing Index in June improved for the third consecutive month, suggesting a healthy global economy, but continued subprime jitters and the increased terrorist activity led to a flight to quality – in this case our securities. 30-yr A-paper prices improved by roughly .125, and appear unchanged this morning. This morning we’ll see Factory Orders and Pending Home Sales, estimated to show a slight increase.