Housing Indicators still solid. (Business alert).

ACCORDING TO AN OCTOBER REPORT BY Morgan Stanley, Weekly Pulse: Housing Still OK, housing indicators are still solid. The unsold inventory of homes, in months of supply available, inched up in September. However, with inventories at 30-year lows, Morgan Stanley believes that home values are

likely to stay stable. The inventory of new homes in months of sales rose to 4.4 in September from 4.2 in August. However, these are still extremely low levels of inventory--the lowest levels since 1971 -- and fully 1 standard deviation below the average over the last 40 years of 6.1. The inventory of existing homes increased to 5.4 months from 4.8 in August, also 1 standard deviation below the average of 7.6. Sales prices for existing homes showed a modest sequential decline of 4 percent, from $153,700 in August to $148,100 in September. However, sales prices were still up percent year-over-year.

Broken down by census region, the West led with 8.3 percent year-over-year growth in median sales price of existing homes, followed by the South at 5.1 percent and the Northeast by 3.4 percent. The North Central region showed 2.6 percent growth in prices year-over-year. The median new-home sales price fell more substantially in September, and is now running down 5 percent year-over-year. However, this figure was likely affected by a pronounced mix shift in the type of home sold. The impact of the economy and the Sept. 11 attacks seems to have fallen more heavily on the upscale market--interestingly, a finding consistent with patterns in credit card usage.

While rising unemployment is a negative factor, Morgan Stanley sees several sources of strength in the housing market. Low interest rates make housing affordable, and underbuilt markets, as reflected in inventory trends, should also help stabilize pricing. Also, home values are fairly valued in relationship to disposable income, especially at the median level. Finally, the financial health and growing technological sophistication of the mortgage finance industry mean that credit will remain available for most homebuyers. A housing credit crunch will not exacerbate the current downturn, according to Morgan Stanley.