The annual volume of new home completions fell to 1.3 million, which is the lowest total since December 1995.

Housing starts continue to fall, reaching 1 million over the last 12 months, which is a leading indicator that completions are likely to continue to decline for the near future.

Single-family permits fell below 700,000, which is the lowest volume since early 1991, and a 41 percent decline in the last year alone. Multifamily permits continue to decline as well, and the total seasonally adjusted permit activity has fallen below 1.1 million — a level not seen since March 1993.

John Burns is the founder of Real Estate Consulting in Irvine, Calif., which monitors changes in real estate market conditions and provides consulting services, including strategic planning, market research and financial analysis. He can be reached at jbrec@realestateconsulting.com.

As if a horrible housing market isn’t enough of a drag on the economy, businesses are now curtailing their spending as well. In December, a survey of manufacturers indicated that their budgets are being cut, and this week we learned that service sector businesses are also contracting. The bad news: recession. The good news: additional Fed rate cuts.

The chart below shows the decline in the manufacturing and services sectors indices. An index reading above 50 indicates that the sector is generally expanding.

Our grading system of the economy and the housing market is a “bell curve” model, with statistics at an all-time high receiving an “A,” statistics near the long-term average receiving a “C,” and the worst times ever receiving an “F.” In this grading system, it is OK to be a “C” student.

Here is our current report card:

Economic Growth: C-

As expected, slower economic growth was reported during the fourth quarter, with early estimates of GDP growth at just 0.6 percent, which is down substantially from 4.9 percent growth in the third quarter.

Employment growth also fell sharply, falling to a year-over-year change of just 977,000 payroll jobs, or 0.7 percent growth. Unemployment fell slightly to 4.9 percent, but mass layoff events during the month of December were 20 percent higher than one year prior.

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As reported by the Mortgage Bankers Association, the percentage of mortgage loan applications with an adjustable interest rate continues to drop, reaching just 8.6 percent of all loans originated during the last week of January. The performance of subprime loans continues to weaken, as measured by the ABX 06-2 BBB- series index, which has declined 83 percent in the last year.

Consumer Behavior: C

Consumer behavior was generally weaker this month, as consumer confidence declined to 87.9, well below its long-term average of 98.6. The University of Michigan’s Consumer Sentiment index improved slightly in January from a two-year low in December, but still remains much lower than its long-term average.

The Consumer Comfort index fell to its lowest monthly average in five years, based on respondents’ impressions of the national economy, personal finances and buying climate.

Existing-Home Market: D

The existing-home market remains weak, with few signs of improvement this month. The for-sale homeowner vacancy rate increased to 2.8 percent in the fourth quarter, matching the first quarter of 2007 as the highest rate of vacancy since the Census began tracking the statistic in 1956. Tied to the increased vacancy, the home-ownership rate fell to 67.8 percent, continuing a steady decline after peaking above 69 percent in this cycle.

Annualized existing-home sales dipped to 4.89 million, representing a 22 percent decline in the last year, and a declining pending home sales index means sales are likely to fall further.

Prices in the resale market have fallen 6.5 percent in the last 12 months, according to the National Association of Realtors.

A positive note in this sector is that the number of homes for sale continues its gradual decline, falling to 3.9 million homes, or 9.6 months of supply, though supply still remains above year-ago levels.

New-Home Market: F

The new-home market weakened even further, as sales activity and prices continue to decline, and levels of supply are increasing.

The NAHB’s Housing Market Index, which measures sales and traffic, improved slightly to 19 from a downwardly revised December figure, but remains near its historical low.

New-home sales activity fell to 604,000, representing a decline of 41 percent in the last year and a decline of nearly 57 percent from its peak level in July 2005.

The relative level of unsold new homes increased to 9.6 months of supply, which is the highest since October 1981. This includes approximately 3.9 months of unsold completed new homes alone.

The Census Bureau reported that the median new-home sales price of $219,000 represented a 10 percent decline over the last year, which is the worst year-over-year decline since December 1970.

Housing Supply: F

The supply of housing continues to decline as builders show restraint in this tough market.

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