Daily Forecast Update: Mortgage Applications, Housing Starts, CPI

November 18, 2009

By Arun Barman, Research Economist

Good news: inflation concerns remain low after reports on the CPI and PPI this week, coupled with comments from Fed Chairman Bernanke earlier this week. Mortgage rates should remain relatively low at least through the middle of 2010.
Bad news: There has been a decline in housing starts and mortgage applications. However, lower housing starts may ultimately help clear the inventory problem sooner and help lead to price stabilization. Also, with continued low rates and an extensions of the home buyer tax credit, there are plenty of incentives for consumers positioned to buy a home.

The Mortgage Bankers Association reported that mortgage loan application activity decreased a seasonally adjusted 2.5 percent in the week ending November 13th.
Refinance activity was down 1.4 percent and purchases activity was down 4.7 percent from the week prior.
On a positive note the rate on a 30-year fixed mortgage declined to 4.83 percent according to the survey.
Although the home buyer tax credit has been extended through the middle of next year, with the initial expiration date of November 30th, there may have been a decline in activity as consumers held back buying activity. Also, the data may be impacted by consolidation in the mortgage industry, an increase in the number of all cash purchases.

The Census Bureau reported that housing starts fell 10.6 percent in October from September to a seasonally adjusted annual rate of 529,000.
On a year-over-year basis, housing starts were down 30.7 percent.
Building permits fell 4 percent on a monthly basis and were down 24.3 percent on an annual basis.
The fall in housing starts, while bad for builders and the construction industry, should help to reduce inventory and help price stability in the housing market. Some of the reduction in starts might be attributable to the initial phase out date of November 30th for the first time home buyer tax credit, similar to the mortgage purchase application data.

The Bureau of Labor Statistics reported that consumer prices rose 0.3 percent in October; however, core prices, which exclude food and energy, only increased 0.2 percent.
Core prices were slightly higher than had been forecast, but a lot of that was due to a larger than anticipated increase in automobile prices.
Housing, the largest component of the CPI at 43 percent, increased slightly by 0.1 percent. Rent of primary residence fell 0.1 percent, and owners' equivalent rent of primary residence was unchanged.
The CPI numbers today and PPI numbers from yesterday should allow the Fed to keep rates low for the near term, as Fed Chairman Ben Bernanke mentioned earlier this week.

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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