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Weekly Housing Commentary for May 1, 2008Mortgage rates were little changed this week on mixed news of higher inflation indicators and a weaker housing market. For instance, the Federal Reserve’s (Fed) preferred measure of inflation, the personal consumption expenditures price index, rose at a 2.2 percent annualized rate in the first quarter and inflation expectations for five years ahead rose to 3.2 percent in April, the highest since October 2005, according to both the Bureau of Economic Analysis and Reuters/University of Michigan Survey. Meanwhile, residential fixed investment shaved 1.32 percentage points off of real growth in the gross domestic product in the first quarter of this year. In addition, the S&P/Case-Shiller® 20-city composite index fell 12.7 percent over the twelve-months ending in February, reflecting an all-time record drop since the series began in 2001; the 10-city composite index also fell an all-time record of 13.6 percent since it began in 1987. In its most recent policy committee statement on April 30th, the Fed indicated that it expects inflation to moderate in coming quarters but that uncertainty about the inflation outlook remains high. However, it did note that financial markets remain under considerable stress, and tight credit conditions and the deepening housing contraction are likely to weigh on economic growth. Considering these factors, the Fed shaved a quarter of a percentage point off the overnight federal funds rate to 2.0 percent, the lowest since November 2004.
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