Mortgage bonds got the news they were hoping for this morning when the Consumer Price Index (CPI) showed that inflation maintained at a stagnant pace in the month of July. The report showed that consumer prices increased .1%, and the Core Rate (which strips out food and energy) increased at .1% as well. Further, the year over year increase cooled a bit, dropping from 2.1% down to 2%. This is right in line with the Federal Reserve’s expectation level. Next Friday we get the Fed’s favorite reading on inflation, the PCE (Personal Consumption Expenditure). That will be an important headline that has also has the ability to set the direction of mortgage interest rates.
We had strong housing data released this morning, with both Housing Starts and Building Permits much stronger than expected. New Home Starts were released at 1.093M units, which is a 15.7% increase from the prior month’s figure. Building permits were released at 973k units from 963k units the month prior. These are both strong reports and show that at least with new construction, the market is improving. This coincides with yesterday’s Housing Market Index reported by the National Homebuilders Association. That report showed that builders are much more confident now than they were.
The stock market is continuing to move higher, which is pressuring mortgage rates higher as it climbs. With the stock market again within striking distance of setting new all-time highs, we are going to maintain our locking bias. As the stock market approaches the ceiling that has never been broken, they may be pushed lower. However, there again seems to be an unstoppable force adding unreasonable pressure for stocks to continue higher. With QE3 nearing completion, it will be interesting to see if stocks can maintain their strength or if reality eventually sets in to the market.