Commentary: The pace of economic growth downshifted sharply over the course of the last three months. Growth as calibrated by Gross Domestic Product - a measure of the value of all goods and services produced within our domestic borders - slowed to 1.8% annual rate after churning along at a 3.1% annual pace during the final three months of 2010. Output was restrained by harsh winter weather, rising imports as well as the weakest government spending in more than 27 years. During the same period, inflation rose at its fastest rate in two years.
Weaker economic growth is a double-edged sword in terms of its impact on the mortgage market. Slower economic growth reduces the demand for capital - which in turn allows interest rates to drift lower. On the other hand, slower economic growth restrains job growth - which in turn reduces the pool of prospective homebuyers. Rather than lower mortgage interest rates -- what we as an industry really need now -- is fractionally higher rates created by accelerating economic growth and its attendant job creation. I think most readers would agree that slightly higher mortgage interest rates seldom cause motivated buyers to abandon the mortgage financing transaction - especially if the prospective buyer reasonably believes mortgage rates and underlying property values are likely to move sideways to higher in the relatively near-term future.
Speaking of job creation, Labor Department data released earlier this morning showed first-time claims for unemployment benefits continue to swing wildly. For the week ended April 23rd the number of American's standing inline to file for government benefits rose 25,000 to 429,000. Initial weekly claims have now been above the 400,000 level -- viewed by economists as the line dividing an expanding labor market from one that is contracting for three consecutive weeks. A department spokesperson pointed out that supply disruptions in the auto manufacturing sector created by the tragedy in Japan cannot be discounted. Automakers in the U.S. had expected to produce about 3.6 million vehicles in the second quarter - but because of a shortage of parts from Japan - that number is now expected to fall by at least half a million. Even though lost production is expected to be made up in the second half of the year -- it is currently taking a toll on the number of workers on the production lines.
In a nutshell - the collective story told by today's economic data suggests mortgage interest rates will likely continue to bounce back and forth in a relatively narrow range - unfortunately supported in large part by a temporary but noticeable weakness in consumer demand.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
