Good economic news?

Is it possible? Well, the markets went nuts yesterday on a good inflation report and continued today:

Wall Street rallied for the second straight day Wednesday as economic data pointed to a reduction in inflationary pressures that could forestall interest rate increases. Reports showed a weakening housing market and lower than expected inflation on the retail level once food and energy were stripped out.

The comforting inflation news suggested that the Federal Reserve will not resume raising interest rates in the near future. The Fed uses interest rate increases to combat inflation, but higher rates undercut economic growth, take a bite out of corporate profits and reduce the attractiveness of stocks to investors.

Though it's beginning to appear that there is no mistaking the slow-down that's hit the housing market:

The slowdown in the once-sizzling housing market is spreading, with 29 states reporting spring sales declines, led by big drops in the former boom areas of Arizona, Florida and California. Nationally, sales were down 7 percent in the April-June quarter this year compared with the same period in 2005, the National Association of Realtors said Tuesday in its latest state-by-state look at housing conditions around the country. Twenty states, however, posted gains. Those included Missouri, with a modest 0.8 percent increase.

The Realtors survey showed that the biggest declines occurred in states that had been enjoying red-hot sales during the five-year housing boom.

The five biggest declines this spring compared to the April-June period of 2005 were Arizona, down 26.9 percent; Florida, down 26.7 percent; California, down 25.3 percent; Virginia, down 23.9 percent; and Nevada, down 23.5 percent.

The report depicted a tale of two housing markets, with former boom areas experiencing declines and other areas of moderate sales gains during the boom years experiencing strong growth.

I feel bad for folks who went for the jumbo-loan and bought twice the house they could afford. It's bad enough being stuck with a piece-of-junk second.