This morning brought some disappointing housing data for the bulls who have placed great growth optimism on continued strength in this area. The recent back up in interest rates triggered falling mortgage applications in 9 of the past 10 weeks, now down 44% year over year, for the largest decline over 10 weeks since the US economy was last relapsing in December 2010 (when interest rates were moving higher in response to the first round of QE). In a directly related story Bernanke just admitted in his Capitol Hill Q&A that if rates were to tighten here “the economy would tank” (his words). And right on cue, we learned today that US housing starts for June clocked their biggest miss to expectations since 2007 and that US housing permits registered their biggest drop vs expectations ever in the data’s history. All disappointing, but the real rub is this: every time the Fed has announced more QE in the past 3 years, interest rates (including mortgage rates) have increased not decreased. The Fed has now earned its rightful role in harming credit-addicted asset markets and the economy whatever they do and don’t from here.
Housing starts were like a Debbie Downer Wednesday morning, bringing negativity to the housing recovery party. June housing starts fell 9.9% to an annualized rate of 836,000—the lowest level since August 2012 and far below what economists had expected.
“Today’s report was really surprising,” says Yelena Shulyatyeva, U.S. economist for BNP Paribas. “We should be more cautious about our optimism.”
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