It is another lethargic, thinly traded day in the mortgage market. Surprising strength in this morning's June housing starts and building permits report was enough to give the sellers the edge as the day gets underway.
The Commerce Department said housing starts climbed 3.6% last month - driven higher by a solid 14.4% gain in single-family home construction with more modest gains in the multi-family category. The June gain in single-family home building is the largest monthly advance since December 2004 and the first time since February-March 2007 that single-family starts posted back-to-back monthly growth. June permits, an indicator of builder confidence, leapt 8.7% higher.
Most investors appear to be taking the June Housing Start and Building Permit report with the proverbial "grain-of-salt." While the latest data from the housing sector is encouraging - it is probably premature to declare a bottom for home builders has been established. This data series is subject to large and frequent revisions. Additionally, some of the recent surge in homebuilding may be a timing "thing" - builders racing to get pre-sold units on the ground before the December 1st expiration of the federal homebuyer tax credit.
Looking ahead to next week, the economic calendar offers little in the way of data that will likely influence the direction of mortgage interest rates one way or the other. Monday's Leading Economic Indicators report (10:00 a.m. ET) will likely draw little more than a disinterested yawn from market participants. Thursday's (8:30 a.m. ET) initial jobless claims data will probably be heavily discounted due to distortions created by the bankruptcy of major participants in the auto and related industries. The week will round out with the release of the June Existing Home Sales data on Thursday (10:00 a.m. ET). The June New Home Sales report will be released on the following Monday (10:00 a.m. ET). Both measures of home sales are expected to show some modest improvement - a condition that is already priced into the mortgage market.
The "wild card" of the week will be Fed Chairman Ben Bernanke's semiannual monetary policy testimony before the House Financial Services Committee on Tuesday (10:00 a.m. ET) and an encore performance before the Senate Banking committee on Wednesday (10:00 a.m. ET).
If Mr. Bernanke talks of "bottoms" and the declining need for additional economic stimulus from Congress -- and/or reductions in "quantitative-easing" efforts by the Fed -- expect mortgage interest rates to edge fractionally higher. If, on the other hand, the Fed Chairman expresses concerns about a protracted or "double-dip" recession with the likelihood of joblessness exceeding 10% of the available workforce for an extended period of time -- expect capital to flow from riskier asset classes into the relative safe haven of Treasury obligations and mortgage-backed securities. Such a scenario, should it develop, will almost certainly be supportive of steady to perhaps fractionally lower mortgage interest rates.
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