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Market Comment
Mortgage bond prices rose last week, which helped mortgage interest rates improve. Rates started off on a good note Monday as European debt worries reignited. Italy made headlines as the next country mired in debt concerns. The Treasury auctions showed decent foreign demand. The financial markets experienced some volatility mid week following comments by Fed Chairman Bernanke, which indicated additional stimulus might be needed to boost the economy. We saw some negative movements Friday morning following higher than expected core inflation on the consumer side. Mortgage bonds ended the week better by about 5/8 of a discount point.
The Treasury will auction 10Y TIPS on Thursday. If foreign demand falters rates may come under pressure.
LOOKING AHEAD
|
Economic
Indicator
|
Release
Date & Time
|
Consensus
Estimate
|
Analysis
|
| Housing Starts |
Tuesday, July 19,
8:30 am, et
|
510k |
Important. A measure of housing sector strength. Weakness may lead to lower rates. |
| Existing Home Sales |
Wednesday, July 20,
10:00 am, et
|
4.8m
|
Low importance. An indication of mortgage credit demand. A significant decrease may lead to lower rates. |
| Weekly Jobless Claims |
Thursday, July 21,
8:30 am, et
|
403k
|
Important. An indication of employment. Higher claims may result in lower rates. |
| Philadelphia Fed Survey |
Thursday, July 21,
10:00 am, et
|
None
|
Moderately important. A survey of business conditions in the Northeast. Weakness may lead to lower rates. |
| Leading Economic Indicators |
Thursday, July 21,
10:00 am, et
|
Up 0.4%
|
Important. An indication of future economic activity. A smaller increase may lead to lower rates. |
| 10-year TIPS Auction |
Thursday, July 21,
1:15 pm, et
|
None
|
Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates. |
Housing Starts
Housing starts data is a leading indicator of the state of our economy. This report, provided by the Bureau of the Census, takes into account data from both single-family homes and multi-family dwellings. Building permits are also released with the housing starts data. By knowing the number of permits issued monthly, analysts can attempt to estimate for the upcoming months. Normally, starts are 10% higher than permits since all locations are not required to have a building permit.
Housing starts and permits give a warning of future economic activity. In effect, a rise in housing starts can lead to a fall in the bond market and vice versa. Consumers tend to hold off on the purchase of new homes, new cars, and other big-ticket items if they are worried about the future of the economy. Housing is an important part of our economy. Continued declines in housing starts can lead to continued economic slowdown and essentially a deeper recession. On the other hand, increases in housing starts could signal a possible reversal.
From the opposite perspective, changes in interest rates often lead to changes in housing starts. High interest rates can cause a significant decline in home sales, which can lead to a drop in housing starts. Just the opposite happens when rates drop and is one of the additional reasons the Fed is trying to keep rates low. Low mortgage rates affect both home sales and housing starts.
The housing market is a vital component in sustaining the economy. The continued weakness of the housing market has many worried. Many economists believe housing will continue to suffer.
There is still uncertainty regarding the future state of the economy. Interest rates are historically low. A cautious approach is wise to protect against future volatility.
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