Mortgage Rates Move with Housing Data, FOMC Comments, September 21, 2010

Mortgage rates will have early directional guidance from housing starts data.  This afternoon the Federal Reserve Open Market Committee will release a statement that will impact mortgage rates.

Mortgage Rate Trend Direction:         Down

Economic Reports/Rate Impact:        Housing Starts, 8:30 AM ET, High Rate Impact

Key News:                                              Federal Reserve Open Market Committee (FOMC) Statement

Summary

It will be an interesting day for mortgage rates as we get a look at an important data point in the morning, then get the opinion and posture of the Federal Reserve toward the US economy in the afternoon.  Housing Starts are expected to show a slight increase.  No change in Fed policy or posture is expected.  I expect rates to improve slightly at initial pricing this morning.

Impact of economic reports

Housing starts jumped significantly in the past month providing a surprise to market traders.  The stock market turned higher immediately upon release of this report.  The question is whether increased housing construction is good or bad for the overall economy.  Certainly it results in increased employment and increased sales of consumer goods.  But, with well over a million homes in excess inventory in the US, will an additional 600,000 homes simply bring down housing values further?

Impact of international or political data

The FOMC faces a dilemna.  Last meeting they were seriously considering more quantitative easing (QE--purchasing of government debt).  With the declaration yesterday that we have been out of the Great Recession for 15 months and economic news that has been pretty good, do they follow through with the QE?  Market traders have been expecting more QE.  What will the reaction be if it is not forthcoming?