The Cascade Team Blog

October 3, 2012

Last week in review (September 24 - 28, 2012)

Last week’s final reading of GDP for the second quarter was unfavorable. Read on to learn why this matters and how home loan rates are faring.


Table source: Mortgage Success Source

Last week, the final reading of the GDP for the second quarter was reported at 1.3%.  This was after a sizable downward revision to previous estimates and this is significant because GDP is the broadest measure of economic activity.  In addition, durable goods orders (i.e. orders for products like furniture and computers that are designed to last for an extended period of time) came in low. Figures like these speak to the improvement needed in our economy, and are a big reason why the Fed announced its latest round of bond buying (known as Quantitative Easing or QE3) on September 13.

There was some surprisingly good news last week, as initial jobless claims came in at 359,000, much better than expected and the best reading since late July. One of the main objectives of QE3 is to promote job growth, which is essential for our economy to grow. Time will tell if QE3 and this money injection into the economy will spark economic growth and lower unemployment, or if it will devalue the U.S. dollar, raise commodity and asset prices like stocks, and heighten inflation fears.

What does all of this mean for home loan rates? Inflation has negative impacts on bonds and home loan rates because it reduces the value of fixed investments like bonds. If inflation does seep into the economy, this could have a negative impact on bonds and home loan rates in the coming months.
 
On the flip side of that, negative economic news like the GDP Report and durable goods orders often causes investors to move their money out of risky investments like stocks and into safer investments like bonds, including mortgage bonds (which home loan rates are based on). That’s why home loan rates often improve when our economy is struggling. In addition, investors also tend to move their money into safe investments like our bonds during times of global uncertainty, such as last week’s strikes in Greece and riots in Spain. These two factors and the Fed’s QE3 mortgage bond purchases are the main reasons that Bonds and home loan rates have improved of late.

The bottom line is that home loan rates remain near historic lows, meaning now is a great time to consider a home purchase or refinance.

In the news this week (October 1 - 5, 2012)


Table Source: Mortgage Success Source