Updated on January 19, 2022 10:06:45 AM EST
Decembers Housing Starts started this week’s economic calendar at 8:30 AM ET. The Commerce Department announced a 1.4% rise in new home groundbreakings, exceeding forecasts by a little. The secondary reading that tracks newly issued permits (sign of future groundbreakings) was also a bit higher than expected. These readings are a sign of modest growth in the new home portion of the housing sector, but since the report carries a low level of importance in the markets, we haven’t seen much of a reaction to the numbers.
We also have the results of today’s 20-year Treasury Bond auction to watch this afternoon. Ideally, we would see a strong demand from investors that leads to bond strength and lower mortgage rates later today. However, the heavy negative momentum in the bond market currently makes it difficult to be optimistic about this sale. Results will be posted at 1:00 PM ET, meaning this is an early afternoon event for rates.
So what is behind this significant sell-off in bonds and spike in mortgage rates over the past couple weeks? There is no single, clear reason for it even though there is plenty of speculation. The common theory is the Fed’s shift to a more aggressive approach in tackling stubborn inflation that has reached decades-high levels. While that is a good theory and is likely contributing to the sell-off, it shouldn’t be a surprise to traders at this point. There were obvious signs a change was coming early last month when the term transitory started to be omitted when the topic of inflation was being discussed. But again, the consensus regarding the Fed taking action sooner than later was formed well over a month ago. That leaves us to believe there is another underlying force behind the weakness.
There is an FOMC meeting taking place on the 25th and 26th of this month that may show some clarity as to what the Fed will actually do, compared to rampant speculation at this point. Until that meeting adjourns, don’t be surprised to see continued pressure in the bond market and mortgage rates. Hopefully this ugly period is setting us up for a post-FOMC rally.
Tomorrow has two pieces of data scheduled, not that the markets care much about economic reports at the moment. First will be last week’s unemployment figures at 8:30 AM ET. They are expected to show 211,000 new claims for unemployment benefits were filed last week. The higher the number of initial filings, the better the news it is for rates.
Decembers Existing Home Sales from the National Association of Realtors is set for release at 10:00 AM ET tomorrow. This data will give us detailed information about housing sector strength and mortgage demand by tracking home resales in the U.S. It is expected to show a small decline in sales from Novembers level, meaning the housing sector softened slightly last month. Ideally, bond traders would like to see a large decline in sales, pointing towards sector weakness because weaker housing makes broader economic growth more difficult. As long as we dont see a significant surprise in sales, it shouldnt have a noticeable impact on mortgage rates.
©Mortgage Commentary 2022