In recent weeks, mortgage rates have been pushed and pulled mostly by Fed policy expectations and European Union headlines. With little news on these fronts, though, the US economic data emerged as the main driver of mortgage rates this week. Unfortunately for mortgage rates, the data was generally stronger than expected, and rates ended the week higher.

This week’s economic data exceeded expectations nearly across the board. Important broad indicators of economic growth, including Retail Sales and Industrial Production, showed solid increases from last month. The Philly Fed manufacturing index rose to the highest level since April. Perhaps the biggest surprise came from the housing data (see below). While stronger economic growth is great news for the economy, it tends to increase future inflationary expectations, which is bad news for mortgage rates.

The national housing data released this week continued to reflect solid improvement. September Housing Starts jumped 15% from August to the highest level since July 2008. Building Permits showed similar strength. September Existing Home Sales were 11% higher than one year ago, making 15 straight months of increases on an annual basis. Inventories of unsold existing homes declined to the lowest level since March 2006. The October NAHB Home Builder Sentiment index rose slightly, its sixth consecutive monthly increase, to the highest level since June 2006.

The big story next week will be Wednesday’s Fed meeting, although investors are not expecting any major changes from the Fed following the announcement of QE3 at the last meeting. The most significant economic data will be Friday’s release of third quarter Gross Domestic Product (GDP), the broadest measure of economic growth. Before that, New Home Sales will come out on Wednesday. Durable Orders and Pending Home Sales will be released on Thursday. In addition, there will be Treasury auctions on Tuesday, Wednesday, and Thursday.

Copyright @ 2012 MBSQuoteline