MARKET COMMENT

Mortgage bond prices finished the week higher which put downward pressure on mortgage interest rates. Rates were neutral to better almost every day of the shortened trading week. Consumer prices rose 0.4% and the core rate, which excludes the volatile food and energy costs, rose 0.2%. Traders expected CPI to rise 0.3% and the core value to rise 0.2%. Producer prices rose 0.4% and the core rose 0.3%. Both figures were slightly higher than expected but didn’t cause any significant rate movements. Retail sales, an indication of the strength of the consumer, rose 0.3%. Excluding automobiles, sales rose 0.2%. Traders expected retail sales to rise 0.2% and ex-auto to rise by 0.4%. Industrial production fell 0.8% versus the expected 0.5% decline. Capacity utilization was 76.7% versus the expected 77%. Mortgage interest rates finished the week lower by approximately 3/8 of a discount point

LOOKING AHEAD

Economic Indicator Release Date & Time Consensus Estimate Analysis
Housing Starts Tuesday, Nov. 19,
8:30 am, et
1260K Important.  A measure of housing sector strength.  Weakness may lead to lower rates.
Fed Minutes Wednesday, Nov. 20,
2:00 pm, et
None Important.  Details of the last Fed meeting will be thoroughly analyzed.
Weekly Jobless Claims Thursday, Nov. 21,
8:30 am, et
220K Important.  An indication of employment.   Higher claims may result in lower rates.
Philadelphia Fed Survey Thursday, Nov. 21,
10:00 am, et
10 Moderately important.  A survey of business conditions in the Northeast. Weakness may lead to lower rates.
Leading Economic Indicators Thursday, Nov. 21,
10:00 am, et
Down 0.2% Important.  An indication of future economic activity.  A smaller increase may lead to lower rates.
Existing Home Sales Thursday, Nov. 21,
10:00 am, et
5.4M Low importance.  An indication of mortgage credit demand.  Significant weakness may lead to lower rates.
U of Michigan Consumer Sentiment Friday, Oct. 25,
10:00 am, et
96 Important.  An indication of consumers’ willingness to spend.  Weakness 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. 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.

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