US mortgages to disappoint − 10yr note auction, Fed minutes

Article by Otmane El Rhazi. Wednesday’s a relatively quiet day for economic news, although the US economy will come under renewed scrutiny with the release of Fed minutes. Meanwhile, a Treasury auction of 10-year Notes will offer guidance on the appetite for debt at current interest rates, an increasingly crucial topic as the market ponders the end of quantitative easing. We’ll also see a new weekly release on demand for mortgage applications, which will provide more context about the mixed state of the housing market.

US: Mortgage Applications (11:00 GMT) The outlook for housing remains a key source of uncertainty for the US economy. Recent data has improved since the winter, but the rebound has been modest and uneven. The wobbly state of this critical sector raises questions about the macro outlook, albeit on the margins. Economic news otherwise has been generally encouraging for the US in recent months. The question is whether a weak housing market threatens the upbeat trend?

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The US recovery could be threatened by a weak housing market. Photo: IvonneW \ Thinkstock

“You’ve got much more negative vibrations in the housing surveys about home ownership than we ever had before,” Karl Case said this week. Case, of course, is one-half of the economic team that developed the widely followed S&P/Case-Shiller Home Price Indexes and so he knows a thing or two about the real estate market. Speaking to CNN earlier this week Case reasoned that the current run of “negative vibrations” are a byproduct of people getting “hosed” in recent years. “They thought that housing prices will never go down. That’s just bull.”

Deciding how much bull is in the market these days is mostly art rather than science. The analysis depends largely on the data sets one chooses to emphasise. Home sales have picked up in recent months. The latest jump in the Pending Home Sales Index, which reached an eight-month high in May, suggests that purchases will continue to rise in this year’s second half. But a sluggish trend for housing starts and newly issued housing permits implies that the market will face headwinds.

Today’s weekly release on mortgage applications—a measure of demand—will provide another clue on how the market’s evolving this summer. For the moment, the recent numbers suggest that the market’s treading water at best.

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