Rates decline on soft inflation newsINTEREST RATE ACTIVITY

Benign inflation news was followed by lower mortgage rates this week.

The benchmark 30-year fixed-rate mortgage fell 2 basis points to 6.32 percent, according to the Bankrate.com national survey of large lenders. A basis point is one-hundredth of 1 percentage point.

The mortgages in this week's survey had an average total of 0.34 discount and origination points. One year ago, the mortgage index was 6.24 percent; four weeks ago, it was 6.49 percent.

The benchmark 15-year fixed-rate mortgage fell 6 basis points to 5.98 percent. The 5/1 adjustable-rate mortgage rose 1 basis points to 6.19 percent.

On Wednesday, the Labor Department reported that wholesale prices barely went up in October. The Producer Price Index, or PPI, went up 0.1 percent; the consensus forecast on Wall Street had been a rise of 0.2 percent.

The soft inflation picture kept a lid on long-term rates. Economist Joel Naroff, head of Naroff Economic Advisors in Holland, Pa., notes that "the Producer Price Index report also reported that gasoline prices are down. Given where they are now, this report, at least as far as energy is concerned, is dead on arrival."

Naroff also noted that fruit, vegetable and confectionary prices went up, and that turkey costs about 5 percent more than a year ago, "so Thanksgiving dinner could be quite expensive this year."

'No big deal'?

Over in the real estate world, house prices have gone in the opposite direction. They have been falling in much of the country as inventories of unsold houses have risen. The National Association of Realtors predicts the median price of a resale house will fall 1.7 percent this year compared with last year -- to $218,200, down from $221,900 in 2006 -- and remain unchanged in 2008.

If you consider that a problem, you're not Lawrence Yun, the NAR's chief economist. "Factually, this will be the first decline on an annual basis since the Great Depression. No big deal," he assured hundreds of Realtors at the trade group's annual convention in Las Vegas last week. "The press tries to make something out of it, but it's no big deal."

Yun noted that mortgage rates are low by historical standards, that home buyers have a lot of choices, and that the sinking dollar makes houses more affordable to foreign buyers who might want to buy vacation homes in the United States.

Fellow economist John Tuccillo, who held Yun's post from 1987 to 1997, wasn't as sanguine.

"I look out there and see $100-a-barrel oil, I see the dollar plummeting, I see the U.S. borrowing up to $400 billion a year from foreign investors," Tuccillo told the same audience. All of those factors, he believes, eventually will bring higher interest rates, including higher rates for mortgages.