Housing and Economic News: A Roundup

by Amy Lillard

A flurry of reports, statistics, and announcements this week provide a portrait of the struggling economy as it stands today.

Prices and Inflation

A report from the Labor Department revealed this week that consumer prices jumped 1.1 percent in June, the second-biggest monthly increase since 1982. Over the past year, prices have risen 5 percent. The sharp increases mean worries about the economy are rising as well, and are causing some analysts to predict a boost in interest rates soon.

Major components of the increasing consumer prices are surging food and energy costs. Food prices have jumped 8 percent on an annualized basis during the past three months; energy costs have increased at a 30 percent annualized rate since the start of the year. Other sectors are also feeling the price squeeze, indicating food and energy costs are affecting the entire economy. Transportation costs rose 3.8 percent last month, and rents and education costs also increased.

Overall, core inflation increased 0.3 percent in June.

Housing Market Ups and Downs

Single-family construction starts fell to the lowest levels since 1991 in June, the Commerce Department said Wednesday. The single-family starts in the U.S. fell to an annual pace of 647,000, a decrease of 5.3 percent.

Multifamily home construction starts, on the other hand, jumped 43 percent in June to an annual rate of 419,000. A change in New York City building codes, as well as a general upswing in the Northeast, led the increase with a 242 percent surge in that area.

Taken together, total housing starts rose by 9.1 percent to a 1.066 million per year pace.

The turmoil in the mortgage market, and the sluggish number of starts in portions of the construction market, has caused builder's confidence to drop and job losses to increase. After stabilizing over the last nine months, the National Association of Home Builders/Wells Fargo sentiment index, reflecting builder's confidence, dropped to 16 in July. This is the lowest level since records began in 1985.

In addition, job losses in construction and manufacturing have increased. Payrolls at builders declined by 43,000 in June after a drop of 37,000 the prior month. The total loss of construction jobs since September 2006 has grown to 528,000.

Plans for Fannie Mae and Freddie Mac

Treasury Secretary Henry Paulson expressed confidence this week about the passage of a three-part plan to rescue Fannie Mae and Freddie Mac. His plan will allow the Treasury to increase credit lines for the two companies, buy shares in the firms, and give the Federal Reserve a bigger role in overseeing their capital requirements.

Together, the two organizations own or guarantee more than half of the $12 trillion in outstanding U.S. home loans. The companies have lost more than 80 percent of their stock market values this year as investors grow increasingly concerned about their ability to weather the housing slump.

Paulson emphasized the plan will be temporary, granting the Treasury powers in the interim to support the two companies. Lawmakers intend to tack the rescue plan onto the pending housing bill that will assist subprime borrowers in mortgage refinancing into fixed-rate mortgages backed by the government, and institute tougher regulation for Fannie Mae and Freddie Mac.

Web Articles:

http://www.washingtonpost.com/wp-dyn/content/article/2008/07/16/AR2008071601144.html

http://www.bloomberg.com/apps/news?pid=20601068&sid=arAkv0oeEHnk&refer=economy

http://www.bloomberg.com/apps/news?pid=20601068&sid=aAaFieHPOZK0&refer=economy