Tame Inflation Data Turns Rates Lower

Categories: Chattanooga Real Estate News, Mortgage and Finance

2008 May 16th

By Angel Sherlin 

Mortgage rates ended the week close to where they began the week, but the end result masked a lot of movement. The week began poorly for mortgage markets.  Stronger than expected Retail Sales data and tough talk on inflation from Fed officials pushed mortgage rates higher on Monday and Tuesday.  In particular, Tuesday’s Fed speakers suggested that the economy was beginning to recover - even if there is still a long way to go - and that inflation concerns have increased.  The tide turned on Wednesday, however, when CPI, the most closely watched inflation report of the month, showed a lower than expected increase in inflation. Mortgage rates fell every day through the remainder of the week.

The April Core Consumer Price Index (CPI) rose at a 2.3% annual rate, below the consensus forecast of 2.4%.  So far, higher food and energy prices have not been passed through in a large way to the prices of other goods.  The Fed has been emphasizing inflation fears for a couple of weeks, which has had a negative impact on mortgage markets, so the good news on inflation was a relief to many investors.  The Fed is generally considered to be comfortable with Core CPI readings below 2.5%.

In the housing sector, this week’s news was mixed.  Against a consensus forecast of 940K, April Housing Starts rose 8% to an annual rate of 1,032K units.  Building Permits, a leading indicator of housing market activity, rose 5%, the first increase in in five months.  The construction of single family homes remained weak, however. The strength in the Housing Starts report came from new apartment construction, which is extremely volatile on a monthly basis.  Separately, the National Association of Realtors (NAR) reported that median home prices fell 8% during the first quarter from the same period one year ago.  The chief economist of the NAR suggested that the data may be a little misleading, since a smaller percentage of high end homes were sold during the period due to the difficulty in obtaining jumbo mortgages.  In addition, the results varied in different parts of the country. 100 out of 149 metropolitan areas saw price declines during the first quarter.

This entry was posted on Friday, May 16th, 2008 at 1:33 pm and is filed under Chattanooga Real Estate News, Mortgage and Finance. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

  1. John Lockwood said at May 16th, 2008 at 9:25 pm

    Nicely done. I’ve voted for it over on RealEstateVoices.com.

  2. Andy said at May 16th, 2008 at 9:57 pm

    John, Thanks for your note and your vote. Andy

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