What Do GDP and QE3 Have to Do With Home Loan Rates?
If at first you don't succeed, try, try again.
That popular idiom could be applied to the Advance Gross Domestic Product (GDP) reading–or first of three readings–for the 4th Quarter of 2011, which came in at 2.8%, a bit below expectations of 3.2%. This number will be revised two more times, but if the final GDP remains at 2.8%...then the overall GDP for 2011 would be a scanty 1.57%.
GDP represents the market value of all goods and services produced within a country in a given period–and is an indicator of our standard of living–so that number would certainly be a "Gross" Domestic Product, especially when you consider that the government has underwritten more than half of that economic growth with the Payroll Tax benefit.
What's more, besides being subsidized by the government's Payroll Tax Holiday, the GDP reading was driven mainly by a build up in inventory (retailers buying from wholesalers) and NOT new sales to consumers. It is quite reasonable to see this trend reverse in the first part of 2012, which would make for a weaker GDP reading. And a weaker GDP reading will make a third round of Quantitative Easing (QE3) a virtual lock.
So, why is this significant and what does this have to do with home loan rates?
First, it's important to understand that home loan rates are tied to Mortgage Bonds, and when Bonds improve, home loan rates typically move lower. History has shown that Bonds improve in anticipation of Quantitative Easing, but then selloff once the official announcement is made. Think about the old investing adage: "Buy on the rumor, and sell on the news." So if rumors of QE3 continue to swirl, we should continue to see great home loan rates leading up to any actual announcement.
Even if the Fed doesn't do QE3, rates will likely remain attractive as the continuing debt problems in Europe will make our Bonds a safe haven for investors. The bottom line is that now remains a great time to purchase or refinance a home. If you have any questions or need any help navigating today's opportunities, call us!