Stronger economic growth is great for the labor market and the stock market. Unfortunately, it also increases the risk that future inflation will move higher, so it is generally not good for mortgage rates. Two factors helped contain the increase in mortgage rates this week, however. First, the inflation data released this week showed that inflation is not a problem right now. In addition, Fed purchases of mortgage-backed securities (MBS) provided sufficient demand to keep mortgage rates at low levels.
The Housing data released during the week continued to be encouraging. December Housing Starts jumped 12%, well above the consensus forecast, to the highest level since June 2008. Building Permits increased 1%. The January NAHB Home Builder Confidence index remained at the highest level since 2006. The Fed's Beige Book reported improving real estate conditions in all twelve regions.
The Housing data will be the main focus on a very light Economic Calendar next week. Existing Home Sales will be released on Tuesday, and New Home Sales will be released on Friday. Leading Indicators will come out on Thursday. In addition, ongoing debt ceiling talks may influence mortgage rates. Mortgage markets will be closed on Monday in observance of MLK Day.