The Government reported a slow down in GDP growth with the housing market taking a big bite, almost 1%, out of the GDP number.
The most current reading shows a growth rate of 1.3%, down sharply from 4th quarter 2006 of 2.5% growth rate.
The article on CNN, http://money.cnn.com/2007/04/27/news/economy/gdp/index.htm?postversion=2007042711.
Normally these types of numbers would translate into lower mortgage rates. However, in these numbers there is a real increase in inflation, the core PCE deflator rose 4%, as opposed to 1.7% in the previous quarter. This means that everyday items, excluding volatile energy and food prices, have increase 4% in the quarter, putting real pressure on disposable income and discretionary spending for the consumer.
The real problem may be with the FED Reserve and the Fed Funds rate. As we all know, the Fed is extremely worried about inflation, maybe too much if you watch CNBC, and this number could cause them to either increase or hold rates despite an economy that may be headed to recession. (Normally with these types of GDP numbers we would expect the Fed to contemplate a lowering of rates to boost the economy, unfortunately the PCE core deflator figure runs against this.)
That all being said, there are still strong job numbers -despite a recent increase in unemployment claims. Jobs are the number one driver of the housing market, so as long as we can continue to see increases in job numbers (yes that is more than likely everywhere but the State of Michigan) our housing market should recover nicely.
Now if we can just get the Fed to at least hold and not increase we are likely to continue to see very attractive interest rates for consumers. The liquidity in the international markets should allow us to attract enough investment to hold these rates, if not improve them over the next couple of months.
Have a great weekend everyone!
Jim Hood, American Home Mortgage
866-648-8231 x1004; Jim.Hood@americanhm.com
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