Each day the Research staff takes a look at recently released economic indicators, addressing what these indicators mean for REALTORS® and their clients. Today’s update highlights CPI and mortgage purchase applications.

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    The Consumer Price Index (CPI) is picking up, now 3.6 % higher compared to a year ago.  On a month to month basis, price pressure mildly eased to a 0.2% monthly increase in May, down from 0.4% a month earlier.  The decline was led by a 1.0% decrease in fuel prices of which the gasoline component declined 2.0%.
  • Core CPI, which drives long-term borrowing costs, edged up slightly from 0.2% in April to 0.3% in May.  The owner’s-equivalent rent component of the CPI, which estimates the rent an owner would have to pay if they were to rent their home, rose just 0.1%. Surprisingly, rents rose 0.1% as well, but anecdotal evidence suggests that rents are on the rise given the tight lending conditions, weak employment situation, and high number of foreclosures.
  • There were also some positive numbers from the Mortgage Bankers Association, which announced a 24.5% increase in mortgage applications for the week ending June 10th, following a sharp drop in the previous two weeks.  The bulk of the gain came from refinancing as the average 30-year fixed rate mortgage slipped from 4.61% to 4.49% over the last three weeks according to Freddie Mac’s weekly mortgage rate survey.  However, purchase applications grew 14.3%, nearly erasing the decline over the previous two weeks.  MBA’s figures do not include all-cash buyers, who have accounted for an unusually high share of purchases in recent months.
  • Also released this morning were figures for industrial production that showed a slight 0.1% increase after being flat in April.  The manufacturing sector grew 0.4%, taking back most of its 0.6% loss from a month earlier, but capacity utilization remains sluggish at 0.0% after falling a month earlier meaning businesses have pulled back from expanding.
  • The economy took an important turn in May.  Gasoline prices have weighed on consumer spending and caused business to pull back in recent months.  Since fuel prices are volatile, they normally do not get priced into core inflation which impacts business decisions and mortgage rates.  However, if they are sustained for a long period, this can cause core prices to rise, impacting business decisions and undermining a recovery.  Core prices have been edging upward, but a sustained decline in fuel prices will undermine this and will help to generate a stronger economy in the second half of 2011.