CPI Increases Slightly in October; Underwater Mortgages, Residential Mortgage Delinquencies Dip

The U.S. Consumer Price Index edged up to 0.1 percent in October. The number of underwater mortgages dropped in the third quarter, as well as mortgage delinquencies.

The Bureau of Labor Statistics said on Thursday that the U.S. Consumer Price Index (for all items) edged up 0.1 percent in October. Over the last 12 months, the all-items index increased 2.2 percent—a fairly low rate of inflation, and in fact roughly what the Federal Reserve sees as its target rate under its dual mandate.

The notoriously volatile energy index, which had risen sharply in August and September, declined slightly in October, the BLS reported. Major energy components turned in mixed results, with declines in gasoline and natural gas more than offsetting increases for electricity and fuel oil.

Factor out energy and food, and U.S. consumer prices were up 0.2 percent for October. One of the main factors driving non-energy, non-food prices upward was shelter, especially rents. The BLS’ shelter index gained 0.3 percent month-over-month, its largest increase since March 2008, and accounted for over half of all-items increase. Increases for shelter and apparel and airline fares more than offset declines in the prices of used cars and trucks, new vehicles, and recreation.

Number of Underwater Mortgages Drops 

Zillow reported on Thursday in its third quarter Negative Equity Report that 28.2 percent of all U.S. homeowners with mortgages were underwater, down from 30.9 percent in the second quarter. Slightly more than 14 million U.S. homeowners were mired negative equity in the quarter, down from 15.3 million in the second quarter.

U.S. home values rose 1.3 percent in the third quarter compared with the second, according to Zillow, and that was the main factor in the negative-equity decline. This is the first time negative equity has fallen below 30 percent, and is the biggest quarter-over-quarter drop since Zillow revised its methodology for determining negative equity in in the first quarter of 2011. On the other hand, the problem still isn’t small: all together, underwater homeowners owe a bit more than $1 trillion more than their homes are worth.

“The fall in negative equity rates means homeowners have additional options for refinancing or selling their homes,” said Zillow chief economist Stan Humphries in a statement. “The housing market has found real momentum of its own, but is not immune from shocks to the broader economy. If negotiations centered on resolving the fiscal cliff don’t inspire confidence in investors and consumers alike, recent home value gains–and, as a result, falling negative equity rates–could stall.”

Residential Mortgage Delinquencies Drop

In a related statistic, the Mortgage Bankers Association reported on Thursday that the delinquency rate for mortgage loans on one-to-four-unit residential properties fell to 7.4 percent of all loans outstanding as of the end of the third quarter of 2012, a decrease of 18 basis points from the second quarter of 2012, and a decrease of 59 basis points from one year ago.

By the MBA’s reckoning, the delinquency rate includes loans that are at least one payment past due, but doesn’t include loans in foreclosure. The percentage of loans in the foreclosure process at the end of third quarter was 4.07 percent, down 20 basis points from the second quarter and 36 basis points lower than one year ago. The serious delinquency rate, that includes loans 90 days or more past due or in foreclosure, was 7.03 percent, a decrease of 28 basis points from last quarter, and a decrease of 86 basis points from third quarter in 2011.

Wall Street didn’t plunge quite as much on Thursday as it did during some previous trading sessions, but the markets were still down for the day. The Dow Jones Industrial Average lost 28.57 points, or 0.23 percent, while the S&P was off 0.16 percent and the Nasdaq declined 0.35 percent.