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Housing Pains & Inflation Creep

November 18th, 2009 Michael McDonough

October’s Housing Starts disappointed the market finishing at an annual rate of 529,000 (-10.6%), while September’s release was revised up to 592K from 590K. Permit’s in October declined -4.0%, to 552K. Single-family starts fell -6.8%, while multi-family homes plummeted by -34.6%. The Bloomberg consensus forecast was for starts at 600K, with forecasts ranging from 570K to 630K.  This release was indicative of a housing market that is struggling rather than in the midst of a strong recovery.

Additionally, the level of mortgage applications continued to decline,–purchase applications hit a 12 year low–likely due what would have been the expiration of the first time home buyer tax credit.  Meaning, those looking to take advantage of the tax credit already have; it will take some time for a new group of buyers to enter the market on the back of the the tax credit’s extension.

October Consumer Price Index rose +0.3% after rising +0.2% in September. This compares to a Bloomberg consensus forecast of +0.2%. The core CPI increased by +0.2% during the month after rising +0.2% a month prior.  The main culprit behind the month’s larger than anticipated jump was a 1.7% increment in vehicle prices, which if factored out would have led to a flat core CPI number.  As expected, energy prices climbed 1.5%, adding momentum to the headline release.  Surprisingly, food prices were relatively stable during the month rising only +0.1%.  Despite adding some ammunition for inflation hawks, I do not believe this report indicates any significant inflation concerns over the near-term, but of course should be monitored as an eventual uptick inflation is inevitable.

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