MIG Market Watch, September 18th, 2023
Market Comment

Mortgage bond prices finished the week a little lower which put upward pressure on rates. Rates generally worsened throughout most of the week. Elevated oil prices, high inflation, and softening consumer attitudes impacted trading. Consumer prices rose 0.6% as expected. The core, which excludes volatile food and energy, rose 0.3% vs 0.2%. Producer prices rose 0.7% vs 0.4%. The core rose 0.2% as expected. Retail sales were up 0.6% vs up 0.2%. Weekly jobless claims were 220K vs 225K. Industrial production rose 0.4% vs 0.2%. Capacity use was 79.7% vs 79.2%. Consumer sentiment took a hit with a reading of 67.7 vs 69.4. Mortgage interest rates finished the week worse by approximately 1/4 of a discount point.

Looking Ahead
Economic Indicator Release Date & Time Consensus Estimate Analysis
NAHB Housing Index Monday, Sept. 18,
10:00 am, et
50 Moderately Important. A measure of single-family housing. Weakness may lead to lower mortgage rates.
Housing Starts Tuesday, Sept. 19,
8:30 am, et
1.44M Important. A measure of housing sector strength. Weakness may lead to lower rates.
Fed Meeting Adjourns Wednesday, Sept. 20,
2:15 pm, et
No rate changes Important. Few expect the Fed to change rates, but some volatility may surround the adjournment of this meeting.
Weekly Jobless Claims Thursday, Sept. 21,
8:30 am, et
225K Important. An indication of employment. Higher claims may result in lower rates.
Philadelphia Fed Survey Thursday, Sept. 21,
10:00 am, et
1.5 Moderately important. A survey of business conditions in the Northeast. Weakness may lead to lower rates.
Leading Economic Indicators Thursday, Sept. 21,
10:00 am, et
Down 0.4% Important. An indication of future economic activity. Weakness may lead to lower 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. 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.