Economic growth sparks more than higher rates

September 04th, 2013

The Bureau of Economic Analysis (BEA) today released its second estimate of US Gross Domestic Product for the second quarter of 2013. This revised look at the economy is a distinct improvement from the first estimate.

The BEA now estimates that the economy grew at a real annual rate of 2.5 percent during the second quarter. This is hardly an economic boom, but it is a distinct improvement from the original estimate of 1.7 percent, and from the first quarter growth rate of 1.1 percent.

Implications for mortgage rates

All other things being equal, improved economic growth tends to put upward pressure on interest rates and, in the current scenario, there is particular reason to believe that an improving economy would lead to higher mortgage rates.

The Federal Reserve has helped hold mortgage rates down by buying massive amounts of mortgage-backed securities. The Fed has signaled that these purchases will taper off as the economy improves. Just when this tapering will occur isn't yet known, but the better the economy performs, the sooner it will happen.

Actions for consumers to take

While the improved performance of the economy might not immediately push mortgage rates higher, anyone in the market for a mortgage should take note: The days of low mortgage rates may be numbered.

In the context of the past two years, the current level of mortgage rates may not seem especially low, but the context of the past 40 years of history indicates that interest rates below 5 percent are extremely rare. That knowledge and the apparent improvement in the economy should prompt consumers to take action:

  1. If you are thinking of buying a home, crunch the numbers at today's rates on a mortgage payment calculator to see what you can afford, so you can get into the market in earnest.
  2. If you are thinking of refinancing, it's time to take a hard look at the numbers on a refinancing calculator. If you can save money at today's rates, there may not be a better opportunity in the future.

Certainly, the economy has had its ups and downs since the Great Recession, so the next signal might point toward lower mortgage rates. However, given how low mortgage rates already are, the odds are against them getting much lower.

Posted By :

Richard Barrington has earned the CFA designation and is a 20-year veteran of the financial industry, including having previously served for over a dozen years as a member of the Executive Committee of Manning & Napier Advisors, Inc. Richard has written extensively on investment and personal finance topics.

Budget deal leaves mortgage rates stable -- for now

October 23rd, 2013

The budget deal removes one potential disruption from the mortgage market, but don't expect rates to stay stable forever....  Read More

Mortgage rates caught in the crossfire of the fiscal showdown in Washington

October 16th, 2013

So far, the fiscal crisis has had a minimal impact on mortgage rates, but that could well change if the US government defaults on any obligations....  Read More

Shutdown squeeze play may cause mortgage fallout

October 09th, 2013

Showdowns over the federal budget and the debt ceiling threaten to put a damper on home prices and mortgage lending....  Read More

Latest figures reveal uptick in refinancing activity

October 02nd, 2013

An uptick in refinancing activity and the continuing rise in home prices show that refinancing opportunities still exist....  Read More

0 Responses to "Economic growth sparks more than higher rates"

No Comments

Leave a Comment