Finally, Some Good News For the Economy
Two reports out this morning suggest the American economy isn’t as bad off as it may seem. First of all, economic production is up more than forecast.
The gross domestic product, the broadest measure of the nation’s economic activity, rose at an annual rate of 3.9 percent during the three months ended in September, according to the report.
That’s up from the 3.8 percent growth in the second quarter. Economists surveyed by Briefing.com had forecast growth would slow to a 3.1 percent percent growth pace.
It was the strongest pace of economic growth since the first quarter of 2006, when the U.S. economy was catching up from the hit it took in the wake of hurricanes Katrina and Rita the previous quarter.
Individual consumption was up by three percent.
One of the positive characteristics of a weak dollar is an increase in demand for exports which rose by 16% in the quarter. The report also showed inflation is in check, which could justify a rate cut by the Fed today.
While this is good news, the specter of rising foreclosures and weak housing and mortgage finance still remain in play.
He pointed out that even though housing and home building had already slowed significantly in the first half of the year, the investment in housing was an even greater drag on the economy in the latest report, not a smaller drag as he and other economists had forecast.
“The risk there is the problems in housing and mortgages fester and spread throughout the economy,” he said. “That’s what the fed has to be concerned about.”
Mortgage financing was the second report today that indicated some strength in the sector. Mortgage applications were up sharply, while rates continued to drop from last week.
Mortgage application volume increased 3.8 percent during the week ending Oct. 26, according to the Mortgage Bankers Association’s weekly application survey.
The MBA’s application index increased to 681.7 from 656.5 the previous week.
The applications were heavily skewed towards refinances and purchase applications showed a decline.
Growth in applications was driven by rising refinance volume. Refinance application volume increased 9.2 percent, while purchase volume dropped 0.7 percent. Refinance volume accounted for 49.6 percent of all applications, compared with 47 percent the previous week.
Application volume rose while interest rates were dropping.
The average interest rate for traditional 30-year fixed-rate mortgages fell to 6.15 percent from 6.21 percent the previous week. The average interest rate for one-year adjustable-rate mortgages declined to 5.93 percent from 6.1 percent.
However, that’s only one explanation. The bigger explanation isn’t so good. As more and more homeowners face mortgage resets, they are looking at refinancing to get out of a higher monthly payment. The big lenders are advertising more and attracting more applications. Here’s the problem. I’ve read that many applicants who get turned down by one lender are simply re-applying somewhere else. This increases the “number” of total applications, but doesn’t mean there are more applicants.
A bank has set criteria and if they are not met by the borrower, that applicant must go somewhere else. A mortgage broker on the other hand, has a variety of lenders and understands where to place the application in the first place to achieve the greatest chance of acceptance. They also have back up lenders, should the first one not go through.
These two reports are good news in the face of mounting negative news from the housing and financial sectors. While the numbers show strength, there is still some underlying weakness we have to consider. Meanwhile, the Fed will announce its rate decision at 12:15 pm MST. I’ll have a full report at Easy Mortgages later today.