Housing Starts Soar to Six Year High
The Commerce Department said on Wednesday housing starts jumped 22.7 percent, the biggest jump since January 1990, to a seasonally adjusted annual rate of 1.09 million units, the highest level since February 2008.
It also said groundbreaking increased 1.8 percent in October and slipped 1.1 percent in September. The release of housing starts data for September and October was delayed because of a 16-day shutdown of the federal government in October.
In a separate report, Confidence among U.S. home builders took a leap in December, as pent-up demand from the government shutdown drove more potential buyers to new model homes. A monthly sentiment index from the National Association of Home Builders (HMI) rose 4 points to the highest level since August.
“This is definitely an encouraging sign as we move into 2014,” said NAHB Chairman Rick Judson, a home builder from Charlotte, N.C. “This indicates that an increasing number of builders have a positive view on where the industry is going.”
The sentiment index has now been in the positive for seven-straight months.
What Happened to Rates Last Week:
Mortgage backed securities (MBS) lost -11 basis points (BPS) from last Friday’s close which caused 30 year fixed rates to move higher for the fifth consecutive week. We saw our best rates on Mondayand our worst rates on Thursday morning. MBS have now lost -112 BPS for the month of December.
All bonds including Treasuries and Mortgage Backed Securities were under pressure last week due to continued economic growth and the announcement by the Federal Reserve Open Market Committee (FOMC) that they would begin to taper their bond purchases.
The 3rd quarter GDP was revised upward to 4.1% and both Housing Starts and Building Permits topped one million units both show economic strength which always pressures bonds and therefore increases fixed mortgage rates.
But the biggest story of the week, and perhaps the year, was the announcement by the FOMC that they would reduce the amount of their monthly Treasury and Agency MBS purchases from $85 billion down to $75 billion beginning in January 2014. Keep in mind that the Federal Reserve does not control mortgage rates directly. They can only control their Fed Fund Rate which they have been very clear will remain in a range of 0 to 0.25% until 2015.
The Fed has manipulated mortgage rates for consumers by creating artificial demand for Fannie, Freddie and Ginnie mortgage backed securities by purchasing them in the secondary market. Throughout 2013, they have been purchasing $40 billion each and every month of MBS and this has made them one of the single largest purchasers of these bonds. This has also created demand for agency MBS at levels that could not have been supported otherwise. Mortgage rates have been on the rise in December as many traders had been speculating that the Fed would begin to curb their monthly purchases in the first quarter of 2014. But the Fed surprised the markets by announcing a “taper” at their meeting last week.
This signals the beginning of the end for their massive monthly asset purchase program. Throughout 2014 they will monitor the economic data and labor market and will adjust their pace of MBS purchases lower as they see fit. If you remember way back to your Econ 101 class, prices are set by supply and demand. Now that demand will fall off for MBS due to the Fed purchasing less and less of them going forward, prices for MBS will naturally fall. And falling MBS prices = higher mortgage rates which move in an inverse direction.
|Date||Time (ET)||Economic Release||Actual||Market Expects||Prior|
|23-Dec||8:30 AM||Personal Income||–||0.50%||-0.10%|
|23-Dec||8:30 AM||Personal Spending||–||0.50%||0.30%|
|23-Dec||8:30 AM||PCE Prices – Core||–||0.10%||0.10%|
|23-Dec||9:55 AM||Michigan Sentiment – Final||–||83.3||82.5|
|24-Dec||7:00 AM||MBA Mortgage Index||–||NA||-5.50%|
|24-Dec||8:30 AM||Durable Orders||–||2.20%||-1.60%|
|24-Dec||8:30 AM||Durable Goods -ex transportation||–||0.60%||0.40%|
|24-Dec||9:00 AM||FHFA Housing Price Index||–||NA||0.30%|
|24-Dec||10:00 AM||New Home Sales||–||433K||444K|
|26-Dec||8:30 AM||Initial Claims||–||350K||379K|
|26-Dec||8:30 AM||Continuing Claims||–||2850K||2884K|
|27-Dec||10:30 AM||Natural Gas Inventories||–||NA||-285 bcf|
|27-Dec||11:00 AM||Crude Inventories||–||NA||-2.941M|
I will be watching these reports closely for you and let you know if there are any big surprises:
It is virtually impossible for you to keep track of what is going on with the economy and other events that can impact the housing and mortgage markets. Just leave it to me, I monitor the live trading of Mortgage Backed Securities which are the only thing government and conventional mortgage rates are based upon.