Look Out Below! Economic News and Mortgage Rate Update

August 27th, 2010

Among various economic reports, the only numbers that went up this week in are those of refinance applications. News wires indicated declines in economic data, suggesting a still struggling economy. If you are using a free mortgage calculator to determine your purchasing power for a new home or your monthly savings from a mortgage refinance, here is some information on the economy that may prove useful in your decision making.

Bernanke’s Big Speech

“Should further action prove necessary, policy options are available to provide additional stimulus,” Federal Reserve Board (Fed) Chairman Ben Bernanke said in a speech today at Jackson Hole, WY. This statement seemingly reverses sentiments common among Fed decision-makers earlier this year, who were then concerned primarily with beginning to slowly draw out the excessive quantities of cash pumped into the economy to aid recovery, without pushing it back to the brink. Bernanke’s statement concedes that the economy is growing at a slower-than-expected pace and thus remains at risk of slipping back into recession all on its own.

In overtly stating that the Fed will support any economic recovery, Bernanke is seeking to reassure those in a position to fund the increased business investments necessary for continued recovery that such expenditures will not potentially be wasted by overly aggressive anti-inflationary Fed decisions in the face of renewed economic contraction. Because the Fed has already pushed short-term interest rates so low, one of the best remaining Fed tools is one already used during this crisis: to buy even more long term securities and bonds. Such an action is intended to push cash into the hands of some of those with the greatest potential ability to be economically productive with it–thus providing revenue and jobs for further recovery and growth.

If you are using a free mortgage refinance calculator to determine your potential monthly mortgage payment savings, anticipate that such a move by the Fed could provide you even greater savings.

Down, Down, Down Goes the Data

This week witnessed some grim housing and economic numbers: July existing home sales were down 27.2% from June; while new home sales seemed golden in comparison, they declined fully 12.4%. July durable goods orders, which represent longer-term product investments and thus may help gauge economic activity, were down 3.8% when accounting for transportation purchases.

The number of first-time filers for unemployment insurance dropped only barely from the prior week to 473,000. Jobs are a primary laggard in this economic recovery, as in many others: Weak employment numbers create uncertainty for families…and thus for the businesses they patronize…and thus for underemployed workers seeking jobs in those businesses–in a seemingly confounding potential feedback loop which may go away only slowly over time. Such uncertainty can greatly curtail retail and corporate spending in the meantime, including the purchase of new homes, factories, and office parks.

Finally, the Commerce Department this week revised the Gross Domestic Product (GDP) growth rate during the 2nd Quarter 2010 down from 2.4% to only 1.6%. While this still unquestionably represents economic growth, Bernanke has warned that this reduced level of growth potentially endangers sustained growth going forward, and thus the jobs recovery for the many unemployed.

Mortgage Rates And Applications Continue Declines

In its weekly report issued August 26th, Freddie Mac announced an average 30-year fixed mortgage rate of at 4.35% at a 0.7 origination point cost, representing the ninth rate drop in ten weeks. According to the Weekly Application Survey of the Mortgage Bankers Association, mortgage applications for new home purchases continue to show seemingly no sign of turning the corner despite the continuing drop in rates, with applications dropping 1.1% for the week ending August 20th. In fact, the purchase application index, an indicator of overall mortgage application volume, is down 38.8% from the same week in 2009.

However, refinance applications are responding to the low mortgage rate environment by increasing 5.7% for the week; refinances now total 82.4% of all mortgage applications being written.

Be Aware And Be Prepared

Whether you are using a free mortgage refinance calculator, closing costs calculator or one of the many other free mortgage calculators available online, knowing what is happening in the economy today can help you plan to take advantage of the historically low interests available now, in preparation for a more secure and prosperous tomorrow.

Posted By :
Dennis C. Smith is co-owner and broker of record for Stratis Financial in southern California. He has over twenty years' experience in the mortgage industry.

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