With an onslaught of recent bad economic news worrying housing economists, a new report on Friday provided some relief. The Producer Price Index, which is used to help forecast inflation, was unchanged in September, according to the U.S. Bureau of Labor Statistics.
The measure of prices paid to U.S. producers of goods and services showed that food prices rose 1% in September while energy prices fell 2.7%. The total price change for goods decreased 0.2%. But that drop was offset by the price of services, which rose 0.2% during the month, led by a 0.3% jump in transportation and warehousing prices. In total for both goods and services, the year-over-year change in pricing was 1.8%.
The moderate pricing results were welcome news for the housing industry which had faced a recent spate of unfavorable economic data. The release of the Consumer Price Index for September showed a hotter-than-expected 0.2% increase in inflation, spooking some analysts into questioning the timing of future interest rate cuts.
Another blow was rising mortgage rates. Freddie Mac announced on Oct. 10 that the 30-year fixed mortgage rate had jumped to 6.32%, up 20 basis points from the previous week. Sam Khater, Freddie Mac’s chief economist, said the spike was the largest one-week increase since April and followed a stronger-than-expected September jobs report.
“However, we should remember that the rise in rates is largely due to shifts in expectations and not the underlying economy, which has been strong for most of the year,” Khater said. “Although higher rates make affordability more challenging, it shows the economic strength that should continue to support the recovery of the housing market.”
According to Jessice Lautz, deputy chief economist and vice president of research at the National Association of Realtors, the increase in interest rates means that those buying a $400,000 home with a 20% downpayment will be facing a monthly mortgage payment of $1,985. Homebuyers making a 10% downpayment will owe an average of $2,233 a month.
“Homebuyers, especially first-time buyers, are extremely sensitive to mortgage rates, and the increase in rates helps to explain the retreat in mortgage applications,” Lautz wrote on her blog. “While inflation has cooled, that does not mean the price of goods has dropped; they are just not increasing.”
