US Housing Starts Hit 6-Month Low as 10Y Bond Yield Hits 13-Month High

The US Treasuries with 10-year maturity period recorded a yield of 1.65% against the backdrop of Fed monetary policy decision scheduled later today. The market do not anticipate any key alterations in the feds fund rate or quantum of asset purchases, but investors are eagerly waiting for economic outlook and additional transparency on the Fed’s stance in regards to a bond sell off in recent times.

Notably, Treasury yields continue to hover around a level unseen since February 2020 as Covid-19 vaccine administration and additional fiscal stimulus package aid the likelihood of a robust economic rebound along with an increase in inflationary pressure. Traders are concerned that a quick economic revival could pave way for a surge in inflationary pressure and debt levels.

However, Treasury Secretary Janet Yellen and Fed Chair Powell have been reaffirming that a sharp rise in inflation will be only temporary. Interestingly, latest fresh consumer price index and PPI data was not impressive.

Data provided by Mortgage Bankers Association indicated that mortgage applications declined 2.20% in the week ended March 12, following a 1.3% decrease in the prior week. Applications for home loan refinancing fell by 4.2% compared with previous week, and 39% down on a y-o-y basis.

On the contrary, applications to buy a home increased 1.8% from the earlier week and up 5% on y-o-y basis. The average fixed 30-year mortgage rate increased 0.02% to 3.28%, the highest reading since the week ended June 26, 2020.

The NAHB housing market index stood at 82 in March, down 2 points from earlier month and a notch below the reading of 83 anticipated by economists. It is the lowest reading in seven months against the backdrop of increasing interest rates and cost of building materials, particularly lumber.

Prevailing sales environment for the single-family division decreased 3 points to 87, while sales anticipations in the forthcoming six months rose 3 points to 83. Additionally, the prospective buyers’ sub-index remained unaltered at 72.

Housing starts in the US fell by 10.3% m-o-m to 1.421 million units (annualized) in February 2021, reflecting the lowest reading in the last six months and missed forecasts of 1.56 million. It can be remembered that housing starts hit the highest level in 14 years in December as people shifted away from big cities due to Covid-19 pandemic. Single-family housing starts were 1.040 million units, 8.5% below January level.

Building permits in the US fell by 10.8% m-o-m to 1.682 million in February, a decline from January’s 15-year high level of 1.886 million units. The reported reading missed market anticipations of 1.75 million. Single-family authorizations plummeted 10% to 1.143 million units.