Economist's Commentary: April 15, 2008

Quick Take on the Economy: April 15, 2008

By Lawrence Yun, NAR Chief Economist

The housing market index for new homes remained stable in the month of March according to the National Association of Homebuilders. The index measures builders' assessments of the present sales condition, traffic of potential buyers, and outlook for the next six months.
The index was unchanged at 20 - the same as in the prior two months. The index had been 18 and 19 in the latter half of 2007.
Though stable, the index is down significantly from the heyday of the boom market when the index was well above a 50 reading.

Producer price index (PPI) rose 1.1 percent in March. The cumulative 12-month increase is now clocking in at 6.9 percent. The increase is sizable and largely reflects the continuing high energy prices.
PPI increased 3.9 percent last year and had been rising at less than 5 percent per year for most of the past 25 years. At the current rate, the producer prices could rise at the highest pace since 1981.
The directional move in the PPI index is usually a forerunner of the much more important Consumer Price Index.

The builders' assessment implies continuing soft new home construction. But the pace of decline appears to be largely over.
Inflation is still lurking ominously. Producer prices are less important than consumer prices, but any trickling of producer prices into consumer prices could mean trouble ahead.
The Fed is expected to cut rates once more at the end of the month. Inflationary pressures, however, always make rate cutting decisions much more difficult.

This is one in a series of commentaries by the Research staff of the National Association of REALTORS®. Read more commentaries >

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