It might be a little stale, but data from S&P/Case-Shiller show home prices continue to stabilize across the nation. Specifically, Case-Shiller's August home price index shows no change. That said, the index points to a slight price contraction going forward. But this really isn't news; recent data from Clear Capital, Zillow, and other data aggregators already show some price weakness in September.

The pricing weakness is likely due in part to aggressive discounting by homebuilders trying to spur demand. The strategy appears to be working. Sales of new homes jumped 5.7 percent in September to an annual rate of 313,000 units. This rise in sales volume, in turn, pushed down supply to 6.2 months at the current sales rate –the lowest supply level in 18 months.

That's the good news. The bad news for homebuilders is that the median national home price is down 3.1 percent to $204,400, posting a third-consecutive monthly decline. What's more, year-over-year price contraction is 9.9 percent –the steepest yearly decline since the recession.

Some of the sting on new home prices is mitigated by the fact that most of the discounting occurred in the West and South: in other words, in the overbuilt regions in Florida, Arizona , and California . It is still possible these regions will continue to skew price data into 2012.

That said, we remain convinced that prices and sales in many parts of the nation will continue to claw forward. Our conviction is bolstered by news on gross domestic product, which improved to an annual growth rate of 2.5 percent in the third quarter. We were particularly encouraged to see more business investment lead by durable goods orders. We mentioned in a previous edition that business investment is just as important as consumer spending to sustained economic growth. The consumer recovered long ago, and now it appears the business investor is recovering as well.

We think this is good news for housing heading into 2012. More economic spending and investing will mean more jobs and less unemployment. Employment, more than anything, is what's needed to pull us out of our doldrums.

What does this encouraging news on GDP growth mean for mortgage rates? An improving economy will mean more demand for loanable funds and possibly rising consumer prices. Admittedly, the economy has improved slower than most (including us) believed it would. But recent events in Europe suggest the Greek debt crisis won't destroy Europe 's banks and the surge in stock market activity points to more risk taking and more economic activity down the road.

In short, the market is leaning toward higher mortgage rates. Next week's data on employment will be key to getting a better idea on where rates are headed.

Courtesy of Jessica Regan.

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