A "Strong" GDP Number And Better Mortgage Rates:
Today might be the time in my 14+ year career as a Loan Officer that I've typed that sentence. A general rule of thumb when it comes to mortgage rates is this:
A stronger than expected economic report (like GDP) can push mortgage rates higher.
Does it happen all the time? No but rarely does a much "stronger" than expected GDP report lead to mortgage rates improving and that's what is happening today.
What's with the quotes around strong and stronger you ask?
Great question! The 3.2% increase in GDP is a blockbuster number considering the expectations was for a 2.00% increase. In Q1 2019 we had the government shutdown, a trade war with China and some economic reports showed the economy slowing. That makes the 3.2% even more impressive!
That is until you look at the internal numbers.
Under The Hood And How Bad It Was:
When bonds rally and mortgage rates improve on a blockbuster report you know something might be wrong with the internal numbers of the report. The increase in GDP can be attributed to two things:
- Health Care
- Inventory Expansion
That is not what you want to see in your GDP report. Health Care is a big part of the economy however it's not as important as most other areas. And Inventory Expansion means companies are stocking up on items rather than selling items. To make matters worse the
Here are some of the alarming numbers:
Durable Goods: + 3.6% Q4 2018 vs -5.3% Q1 2019
Business Investment: 5.4% Q4 2018 vs 2.7% Q1 2019
Consumer Spending: 2.5% Q4 2018 vs 1.2% Q1 2019
As you can see some of the major components of the GDP report declined significantly. Because of this Mortgage Backed Securities rallied and this afternoon we're seeing mortgage rates improve as we head into the weekend.
Mortgage Rates Next Week:
No one has a crystal ball with respect to mortgage rates; there are too many moving parts. However we'll start the week on a good note and if the Fed meeting and the economic data go our way we could see further improvements to mortgage rates. Don't count on this happening but seeing the internals of the GDP report and how the market reacted to last weeks Retail Sales report we're in a good position to possibly see improvements.
Have a great weekend!