Mortgage interest rates improved slightly this past week largely driven by the FOMC policy statement. The statement indicated that the economic recovery has slowed and is likely to be “more modest in the near term than had been anticipated”. As a result the Fed said that it will reinvest principal payments from the $1.25 Trillion in Mortgage Backed Securities that it holds back into longer-term Treasury securities. This is referred to as quantitative easing, which hopefully will help keep rates low on longer term debt in the near term. Economic data of note included weekly jobless claims, which increased on expectations that they would fall. July Retail Sales were in line with expectations. The July Consumer Price Index (CPI) increased slightly more than expectations. Year over year, though, CPI is up only 1.2% indicating very little inflation. The Treasury auctioned $74 billion in debt this past week. Overall, the auctions were met with strong demand.
News of a sharply weaker economy combined with policy vacuum to produce the lowest mortgage rates ever recorded, briefly 4.25% for the highest-quality loans (at rollout in 1944, the first GI loans were pegged at 4.00%, but with a couple of discount points). The 10-year T-note crossed under 2.70%, well into the range of the panicked winter, 2008-2009. All data were poor, notably new unemployment claims rising back toward 500,000 weekly, but the killer lay in trade statistics. Our June deficit versus the world shot up by $10 billion to $54 billion. GDP is based in part on sales, but the “P” portion depends on whether Americans bought stuff produced here or overseas; since we bought a great deal more from overseas than assumed in the first Q2 GDP estimate of 2.7% growth, April-July GDP will soon be revised to only 1.0-1.5%. Guesses for Q3, momentum lousy going in, run zero to 1%.
Gale Boonstra, CPA, MBA, is a Senior Mortgage Consultant at Premier Lending Group in Boulder. Feel free to contact her at 303.302.3932 or gboonstra@pmglending.com
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