“WATER, WATER, EVERYWHERE, NOR ANY DROP TO DRINK”…from Samuel Taylor Coleridge’s “Rime of the Ancient Mariner”…And economists are likely thinking “Growth, growth everywhere, but not a drop of inflation”.

Stronger than expected retail sales and manufacturing reports along with a strong job market and hot housing evidence a very healthy economy. And that typically means higher inflation, especially with soaring energy costs…but according to last week’s reports, the inflation genie looks to be tightly bottled up.

Now Mortgage Bond Traders usually love to hear that inflation is low so they can buy more Bonds. But last week, they just yawned after the favorable reports on inflation and focused more on the Fed, who looks to be on a mission to keep hiking rates even though inflationary pressures are absent. This aided a continuation of the recent slide lower in Bond prices, and home loan rates bumped another .125% higher as a result.

IT’S AN AGE OLD QUESTION – SHOULD I BUY OR LEASE MY NEW CAR? THE DEBATES OVER THIS CAN DRIVE YOU MAD. DON’T MISS THIS WEEK’S MORTGAGE MARKET VIEW ON HOW YOU CAN BURN SOME NEW RUBBER WITHOUT BURNING A HOLE IN YOUR WALLET.

Imagine you go to a shopping mall and see a young child with a yo-yo get on the down escalator. While the yo-yo moves up and down in the child’s hand, the escalator is ultimately taking the child and the yo-yo lower. A look at the chart below shows that while Bond prices have had some small yo-yo type moves higher of late, they have clearly been on the down escalator since June 27th.

That down escalator is about to land on a tough floor of support at the 100-day Moving Average. This sets the stage for a showdown, as prices are about to be squeezed between the two. The recent skid in prices has pushed mortgage bonds into an oversold position, which often leads to a bounce higher. Will bonds be able to get off the down escalator and rebound higher, helping home loan rates improve? The events of the coming week should give us some answers.

The economic calendar is light, but a highlight will be the Fed Minutes on Thursday. Traders will look for clues to see if the Fed is indeed headed towards a 4% Fed Funds Rate from its current 3.25% level. Every market watcher wants to know when the Fed is going to stop the string of hikes. This is because history tells us that once they do stop - stocks will likely bust a move higher, while long term bonds and home loan rates will probably worsen.

There’s nothing like that new car smell. But those new car payments can turn it a bit dank and musty. The big question on financing a new car is whether it should be purchased or leased. So which is better? It depends. A lease finances the use of a vehicle; a loan finances the purchase of a vehicle. Each has its own benefits and drawbacks.

When you buy, you pay for the entire cost of a vehicle; regardless of how many miles you drive it. You typically need more cash up front for down payment and sales taxes, but your first payment is a month after you drive off the lot.

When you lease, you pay for only a portion of the vehicle's cost, which is the part that you "use up" or that depreciates during the time you're driving it. There is typically no need for a down payment, but you may be required to give a security deposit. In most states, you only pay sales tax on your monthly payments. With a lease, you make your first payment before the key goes in the ignition.

What should you do?

Lease payments can improve your monthly cash flow because the payments are 30-60% lower than a loan to purchase. And if the money saved by leasing is invested wisely, it can add up to a hefty sum. While the lower up-front and monthly payments are the obvious benefits of a lease, the best feature may be that you have a guaranteed buyer of your car for a pre-determined price in the future. When your lease ends, you simply turn the car in…even if it its value has declined far more than the dealer had anticipated. This can be a huge benefit, especially with all the incentives to push new cars, making used cars less attractive. Remember, you don’t have to turn in your car; you can buy it or extend the lease at the end.

If you enjoy driving a new car every two or three years that is always under warranty and has the latest features; you don't like trading and selling used cars; you drive an average number of miles, want smaller payments every month and don’t mind always having a car payment…then you should lease.

Buying the car gives you something to drive that eventually has no monthly payments. But repair costs may become an added expense and hassle as the car ages and exits the warranty period.

If you don't mind higher monthly payments, prefer to build up some trade or sales value, like the idea of ownership, like paying off your loan to be payment-free for a while, don't mind the possible cost of repairs after the warranty has expired, drive more than average miles, prefer to drive your cars for many years, like to customize your cars…then you should buy.

Get the latest read on the hot housing sector on Tuesday with the Housing Starts and Building Permits Reports. Thursday the Federal Reserve allows us to be a “fly on the wall” of its most recent FOMC meeting, when they release the minutes.

Remember, as a general rule, weaker than expected economic data is good for rates, while positive data causes rates to rise.

For the week of July 18 – July 22