GDP Growth Revised Down; New Record Low Mortgage Rate: 4.36% – Daily Mortgage Rate Update for August 27th, 2010
2nd quarter growth revised down to 1.6%; Bernanke apeaks; 30-year fixed rate touches 4.36%; Employment data looming – Daily Mortgage Rate Update for August 27th, 2010
The Commerce Department announced the first revision of its 2nd quarter GDP results, lowering its earlier estimate for growth to 1.6% from the advanced estimate of 2.4%. This lower revision was still higher than analysts had expected; they had called for a revision down to 1.4%. Many had expected the downward revision after a large number of disappointing economic reports recently.
A substantial factor pressuring economic growth is imports. GDP is measured by calculating the total value of all final goods and services sold, net of the part of those sales that went to imported goods. Imports surged over 30% in the 2nd quarter, as concerns about the health of European economies depressed the value of the Euro, making European goods much cheaper for US consumers. Because of this, imports represented a reduction of 3.4% in the US GDP. In the first quarter, that category reduced US GDP by only 0.3%. Net of this change, GDP growth would have been much stronger in the 2nd quarter, so we can conclude that recent depreciation of the dollar relative to other currencies may help bolster GDP in the 3rd quarter.
Federal Reserve Chair Ben Bernanke spoke this morning at the Jackson Hole Economic Symposium, saying that the Fed is ready to step in and further stimulate the economy by buying long-term securities, if it feels there is a risk of stronger downturn or deflation. He further indicated that this quantitative easing would be effective at maintaining positive momentum in the economy. Bernanke’s comments have had 2 effects on the market: first, they have reassured markets that the Federal Reserve is prepared to take additional action if it feels the economic recovery is in danger; second, it shows markets that the Fed doesn’t yet believe the recovery is in serious danger.
Bernanke’s comments have injected a substantial amount of short-term volatility into markets, with 10-year Treasury yields swinging substantially within a 5 basis point range, and mortgage pricing taking as much as a .25 point hit. Mortgage pricing has a bit of padding to work with in recent days, as continued poor data has led prices of mortgage-backed seccurities to all-time highs. Mortgage buyer Freddie Mac reported the 30-year fixed rate averaged 4.36% this week, the 9th record low in the last 10 weeks.
In the coming week, we’ll see the month’s most important data: employment. Wednesday, Thursday and Friday all bring new reports on the number of jobs added or lost by the economy in August, and mortgage and Treasury pricing will swing wildly if these figures are different from expectations. It’s too early to see predictions, but we may get a good idea by Monday of what to expect. The economy is currently desperate for new jobs, so any hint employers are growing will be detrimental to current low rates.
Mortgage pricing is substantially worse at the moment than yesterday, on the back of Bernanke’s comments. The 10-year Treasury yield is up more than .1%, and lenders are looking at reprices for the worse at the moment. Still, I do not believe that markets have had the opportunity to fully digest the Fed Chair’s speech. The next day we get anything remotely cloudy from the economy, pricing should spring back. I still suggest floating, but if you have deals that must be locked today, do it now before reprices go through.
If you have questions regarding Rhode Island Refinance Rates, or whether or not to lock your loan, please don’t hesitate to contact me by cell at (401) 263-8655. Have a great day!
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Dan Hartman is a Senior Mortgage Advisor with Province Mortgage Associates, and serves as an Adjunct Professor of Finance and Economics at Roger Williams University and the University of New Haven. He has been helping homeowners and homebuyers with their mortgage questions for over 10 years.
August 27, 2010 by Dan Hartman · 2 Comments
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I have worked as a residential mortgage advisor since February of 2000 and a part of the founding team here at Province Mortgage. We believe that by doing right by a family today, we can create a relationship for life, and, hopefully, and ambassador who will share the experience with others. It is our team of professionals that helps us to create this experience.
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[...] economy. The Commerce Department offered its revised estimate of 2nd quarter GDP, showing somewhat weaker than expected growth, principally depressed by a surge in import sales. In calculating GDP, results for other categories [...]
[...] may not be falling after all. Remember that we learned 2 weeks ago that the large 2nd quarter trade imbalance was the main difference between 2nd quarter and 1st quarter 2010 GDP. A decline in this imbalance therefore suggests that [...]