The economic news is improving but…. Last week the Feds released its Policy Statement and conveyed that there were positives in the economy in most areas except for — housing, which remains “depressed.” While improvements in the economy are good, should this trend continue we will likely see home mortgage rates begin to rise. This is because stocks often benefit from strong economic news and the expense of bonds, including mortgage bonds from which home loan mortgage rates are derived.
The Feds also acknowledged that inflation could increase in the near-term due to higher energy prices. What this means for bonds and home loan mortgage rates is not good as inflation hurts the returns on a fixed investment and investors move their money away from bonds into stocks.
Still there are many uncertainties around the world that may keep investors in bonds as a safe haven. Such events in Greece, Iran, and Israel are carefully being monitored by the financial markets and any news could cause an immediate pendulum swing that could affect the markets.
This week Housing Starts will be delivered on Tuesday along with Building Permits. Then on Wednesday, Existing Home Sales will be delivered, to be followed by Jobless Claims on Thursday and New Home Sales on Friday.
Remember weak economic news normally causes money to flow out of stocks into bonds, therefore helping bonds and mortgage rates to improve, while strong economic news normally has the opposite result.