The month of August began cautiously with mixed economic news, but by the end of the month, the outlook for September housing was greatly improved.

The Bureau of Labor Statistics reported that job losses were continuing, but at a slower pace. Unemployment nationally was estimated to be 9.4%, a slight improvement. But “discouraged” workers, those who stopped looking because they believe there are no jobs for them, nearly doubled, and many people who were not able to find jobs fell off the unemployment rolls.

Jobs are the security required by mortgage lenders, and essential to healthy housing markets. Consumer sentiment sank, and rumblings began that the worst may not be over for this second-worst recession in 100 years.

In response, the Federal Reserve left overnight bank rates alone, at zero to 0.25%, which doesn’t directly impact mortgage interest rates, but the Fed did send the message that inflation wasn’t an issue.

Meanwhile, housing continued to improve, largely driven by the first-time home buyer tax credit.  The National Association of REALTORS reported that pending housing sales were up for the fifth consecutive month in July.

By August 20, the Mortgage Bankers Association announced that mortgage applications were also up, as interest rates crept down to a five-week low, with purchase applications up for the third consecutive week.

And the Commerce Department said that housing starts went down 1% in July 2009 over the previous month. Building permit applications were also down 1.5% to a seasonally adjusted annual rate of 560,000 in July. That’s down from 924,000 units or 39.4% year-over-year. 

While starts are essential to bringing jobs and stimulating local economies with ancillary purchases related to home buying, the news isn’t all bad, as the nation still has an excess of unsold inventory. Existing, or pre-owned home inventories are slowly being absorbed, and are at a 9.4-month supply in July, while standing builder inventories were at 8.8-months-on-hand in June 2009.

At their highest, new and existing home inventories hovered at 11 months on hand. A balanced market is approximately six months of inventory on hand. New home housing sales have improved three months in a row in June. 

If the current rate of improvement in existing homes remains at a steady pace, from 9.8 months on hand in June to 9.4 months on hand in July, the existing housing market could be balanced (on a national basis) in approximately 8 months.  

Momentum in housing sales should continue, as first-time home buyers tax credits end November 30, 2009. Sales must be closed by that date. With banking and appraisal rules adding time to typical closing dates, home buyers must shop in open escrow by the end of September if they hope to close on time.