Mortgage bond prices finished the week significantly lower which put upward pressure on rates. We started on a negative note following terrible consumer inflation readings and never bounced back. Consumer prices rose 0.6% vs 0.3%. The core rose 0.1% vs the expected 0.1% decline. The YOY change was 8.3% vs 8.1%. The YOY Core change was 6.3% vs 6.1%. The producer inflation data added to inflation concerns. Producer prices fell 0.1% vs a 0.2% decline. The core rose 0.4% vs the expected 0.4% increase. The YOY change was 8.7% vs 8.8%. The YOY Core change was 7.3% vs 7.1%. Weekly Jobless claims were 213K vs 226K. Philadelphia Fed was -3.9 vs -5.0. Retail sales rose 0.3% vs 0.2%. Industrial production fell 0.2% vs down 0.1%. Capacity use was 80% vs 80.4%. Mortgage interest rates finished the week worse by over a full discount point.
|Economic Indicator||Release Date & Time||Consensus Estimate||Analysis|
|NAHB Housing Index||Monday, Sept. 19,
10:00 am, et
|48||Moderately Important. A measure of single-family housing. Weakness may lead to lower mortgage rates.|
|Housing Starts||Tuesday, Sept. 20,
8:30 am, et
|1.433M||Important. A measure of housing sector strength. Weakness may lead to lower rates.|
|Existing Home Sales||Wednesday, Sept. 21,
10:00 am, et
|Down 6.9%||Low importance. An indication of mortgage credit demand. Significant weakness may lead to lower rates.|
|Fed Meeting Adjourns||Wednesday, Sept. 21,
2:15 pm, et
|75 basis point hike||Important. Most expect the Fed to change rates. Volatility may surround the adjournment of this meeting.|
|Weekly Jobless Claims||Thursday, Sept. 22,
8:30 am, et
|235K||Important. An indication of employment. Higher claims may result in lower rates.|
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. Declines in housing starts can lead to economic slowdown. On the other hand, increases in housing starts can signal positives for the economy. From the opposite perspective, changes in interest rates often lead to changes in housing starts. Higher 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 remain low. Low mortgage rates affect both home sales and housing starts.
The higher interest rates we have now will factor into the release this week. The question is not if the housing market will soften as a result of higher rates, but by how much and for how long? These are great uncertainties that even the Fed struggles to predict. Be cautious in this interest rate environment. Floating is very risky. The current trend is toward higher rates.