Chicago Tribune

CHICAGO – The housing market resembles a fighter, still standing after 14 rounds, but starting to show a mouse under one eye and more than a few bruises.

While construction continues to inch forward, activity at home builders’ sales centers is down by as much as 20 percent in many locations. And in order to move new homes, some developers are offering no payments or reduced mortgage interest for the rest of this year, or thousands of dollars in free basements, kitchen countertops or other upgrades.

A fresh look at the situation occurs Wednesday, with housing starts for June. Analysts expect it to show slight weakening from the pace of a month earlier, when starts rose 5 percent to an annual rate of 1.957 million units. At the same time, permits for new construction dropped by 2 percent, their fourth straight decline, to the lowest level since November 2003.

“With home sales falling while the inventory of new homes for sale is high and rising rapidly, there is every reason to expect housing starts to fall for the foreseeable future,” says economist Ian Shepherdson.

Real estate markets will continue to struggle during the remainder of this year, says Shepherdson, of High Frequency Economics, Valhalla, N.Y., adding, “This is just the beginning of the unwinding of the housing boom.”

CPI numbers due

In recent days there has been a general consensus that the economy is starting to slow, and that members of the Federal Reserve might be willing to take a pass in their campaign to raise interest rates when they meet Aug. 8.

Such bets may be off, however, if Wednesday’s report of the June consumer price index comes in higher than 0.3 percent. In May, the CPI jumped 0.4 percent, more than expected, while the so-called core rate advanced an outsized 0.3 percent. That set off alarms about inflation.

Chicago banker Kenneth Skopec says the Fed can’t afford to let down its guard against creeping price pressures, but it should be cautious about reining in the economy too much.

“Interest rates could rise so high that activity could come to a screeching halt if the central bank isn’t extremely watchful,” said Skopec, of MB Financial Bank.

After 17 steps to raise rates over 24 months, he says it would be the better part of wisdom for the Fed to take a pause.

Expansion could slow

For the stock market, a series of earnings shortfalls in recent days, coupled with petroleum prices that spurted above $76 a barrel, called into question whether the outlook for the rest of the year remains bright.

In particular, the weakness of reports from big companies is prompting analysts to fret that economic expansion will slow to a rate below 3 percent in coming months, from a hefty 5.6 percent in this year’s first quarter.