Wholesale Inflation Rate Drop

The construction industry fell to a three-year low last month and a measure of wholesale price inflation dropped, boosting speculation the Federal Reserve is finished raising interest rates through the end of this year and possibly beyond.

Housing starts plunged 6 percent in August to an annual rate of 1.665 million, the Commerce Department said today. It was a steeper slide than economists forecasts.

Prices paid to U.S. producers excluding food and energy declined 0.4 percent from July, the Labor Department said, marking the first back-to-back monthly drop since the end of 2002.

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New Home Sales Rise by 4.1 Pct.

Sales of new homes posted the biggest increase in five months in August, raising hopes that the steep slide in the housing industry may be leveling off.

Sales of new single-family homes increased by 4.1 percent last month to a seasonally adjusted annual rate of 1.05 million units, the Commerce Department reported Wednesday. It was the biggest increase since an 8 percent gain in March.

The August rise followed a 7.5 percent plunge in sales in July, which had registered the third straight decline.

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Home Buyers Getting Pushy

Not so long ago, home sellers used aggressive tactics to squeeze every last bit of profit from their home sales. Now that home sales are weakening, buyers have taken a page from the sellers' playbook, demanding everything from new appliances to no closing costs to upfront cash to get the deal done.

In some cases, what they are doing is down and dirty — sellers have been asked to pay off buyer's credit-card debt, cover costs of the buyer's current home or even pay for the buyer's commuting costs from the new home.

This kind of gamesmanship allows buyers to get the most for their money. It also reveals that the housing market's ugly side may be here to stay.

Home Price and Demand Forecast

Average home prices are expected to stay flat through about the middle of next year.  By then, builders will have curtailed supply enough to allow the current overhang of about 300,000 houses nationwide to start to be absorbed by the market.

Still, some analysts predict, sellers will face a dismal spring next year, usually the best selling season.

Housing will play a big part in slowing job growth. Next year, net employment growth will slacken to an average of 117,000 a month.  Home building and related fields…mortgage finance, furnishings, design, landscaping, etc…have made up 25% of overall job growth since 2002.

The housing cooldown will have a broader reach than was expected just a few months ago. Then, it seemed that the bulk of the downturn would be restricted to former boom areas, located mainly on the coasts.  But sluggishness in some industries, especially the auto industry, is taking its toll on some inland areas, notably Indiana, Michigan, Ohio and parts of Pennsylvania and New York.

By late 2007, homeownership is expected to resume its historical role as a relatively secure store of value that also provides shelter.

Home Prices Likely To Fall More

According to the National Association of Realtors, home prices are projected to fall for the rest of the year, with sellers being forced to accept a new reality: Buyers now wield the power, with the supply of homes for sale at a 13-year high.

The median-priced U.S. single-family detached home — half cost more, half less — fell 1.7% in August to $225,700, compared with a year ago. The decline is no doubt jarring to sellers, who haven't seen prices fall nationally since April 1995. The price drop was also sharp, the second-steepest in 38 years.

Sales of existing homes, meantime, fell for the fifth month in a row.

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