Mortgage Rates

Mortage Rates 8:30 June housing starts jumped a huge 6.9% to 760K units (annualized); building permits however were lower, -3.7% to 755K units. Starts were widely expected to increase 4.7% while permits were expected +1.9%. Better than expected but didn’t change the trade in stock index futures that pointed to a lower 9:30 open. The pace of home starts was the fastest since October 2008. Construction of single-family houses increased 4.7% to a 539,000 rate, the fastest since April 2010, from 515,000 a month earlier, today’s figures showed. Work on apartment buildings and other multifamily units climbed 12.8% to an annual rate of 221,000 in June from 196,000 a month earlier. These days everyone is searching for any positive news about the economy, housing sales are slowly increasing and construction improving, but from levels that are some of the lowest in decades. Federal Reserve Chairman Ben S. Bernanke, in testimony yesterday to Congress, indicated the industry was on the mend. Later this afternoon (2:00 pm), the Fed will release its Beige Book survey of business conditions in 12 U.S. districts today, two weeks before the Federal Open Market Committee meets to set monetary policy. The U.S. economy was described as growing at a “moderate pace” in the Fed’s June Beige Book survey. Since the June Book most measurements of the economy have shown increased weakness. The Book should add more details and will get plenty of attention with many now looking for the Fed to launch another easing move. The next FOMC meeting is July 31st and August 1st. There is no conviction of substance at the moment that the Fed will ease at the meeting, yet there is a lot of belief the Fed will ease---when is the question. The meeting will be before the July employment report that won’t be reported until August 3rd. Ben Bernanke will return to Congress at 10:00 this morning this time at the House Financial Services Committee. Yesterday at the Senate he was treated more congenially than he will be at the House. His prepared text yesterday will be the same, it will be Q&A that may light some lights, nevertheless he isn’t likely to change is outlook or be more specific as to what the Fed will do. Congress is completely dead, the President is dead, in terms of providing fiscal stimulus so members expect the Fed to do something; even if another easing isn’t likely to improve the economic outlook much. If (when) the Fed eases there will likely be an emphasis on buying MBSs to keep mortgage rates down. Good idea, but while mortgage rates decline regulators are going in the opposite direction with things like the new disclosure forms that reduces consumers’ choices. Credit is tight and that is not likely change any time soon. At 9:30 the DJIA opened -48, NASDAQ -5, S&P -4. The 10 yr note +10/32 at 1.48% -3 bp; mortgage prices +4/32 (.12 bp) frm yesterday’s close. Technically the US rate markets remain positive but most rates have stalled after the recent rally that took the bellwether 10 yr note from 1.68% on July 2nd to 1.48% this morning. The note has found resistance at 1.46% on a closing basis, it did fall to 1.45% on Monday but it didn’t hold and since then has held steady. Mortgage markets paint the same picture, outlook good but rates have stalled. We don’t expect interest rates to increase as long as the view of another easing dominates as it does today; if the Fed were not to ease then rates will edge higher unless Europe’s debt crisis becomes more worrisome.