GDP and QE3 Impact Markets

In This Issue

Last Week in Review: There was some negative economic news and more pessimism out of Europe. How did home loan rates react? Forecast for the Week: Big jobs news is coming at the end of the week. Plus, the minutes from the Fed’s latest meeting will be released. View: Hispanic Heritage Month ends on October 15, making this the perfect time to connect with your Spanish-speaking clients.

Last Week in Review

A “Gross” Domestic Product. And last week’s final reading of GDP for the second quarter was far from pretty. Read on to learn why this matters…and how home loan rates are faring. Last week, the final reading of GDP for the second quarter was reported at an anemic 1.3%. This was after a sizable downward revision to previous estimates—and this is significant because GDP is the broadest measure of economic activity. In addition, Durable Goods Orders (i.e. orders for products like furniture and computers that are designed to last for an extended period of time) came in shockingly low. Figures like these speak to the improvement needed in our economy, and are a big reason why the Fed announced its latest round of Bond buying (known as Quantitative Easing or QE3) on September 13. There was some surprisingly good news last week, as Initial Jobless Claims came in at 359,000, much better than expected and the best reading since late July. One of the main objectives of QE3 is to promote job growth, which is essential for our economy to grow. Time will tell if QE3 and this money injection into the economy will spark economic growth and lower unemployment…or if it will devalue the U.S. Dollar, raise commodity and asset prices like Stocks, and heighten inflation fears. So what does all of this mean for home loan rates? Inflation is the arch enemy of Bonds and home loan rates because it reduces the value of fixed investments like Bonds. If inflation does creep into the economy, this could have a negative impact on Bonds and home loan rates in the coming months. On the flip side of that, negative economic news like the GDP Report and Durable Goods Orders often causes investors to move their money out of risky investments like Stocks and into safer investments like Bonds, including Mortgage Bonds (which home loan rates are based on). That’s why home loan rates often improve when our economy is struggling. In addition, investors also tend to move their money into safe investments like our Bonds during times of global uncertainty, such as last week’s strikes in Greece and riots in Spain. These two factors and the Fed’s QE3 Mortgage Bond purchases are the main reasons that Bonds and home loan rates have improved of late. The bottom line is that home loan rates remain near historic lows, meaning now is a great time to consider a home purchase or refinance. Let me know if I can answer any questions at all for you or your clients.

Forecast for the Week

Chart: Fannie Mae 3.0% Mortgage Bond (Friday Sep 28, 2012) Big economic data will be released at the end of this week…but there are a number of reports that will build the anticipation as the week goes on! Economic data starts right off on Monday with the ISM Manufacturing Index, which will be followed by the ISM Service Sector Index on Wednesday. The ADP Employment Report for September will also be delivered on Wednesday. The Labor Department will report the Weekly Initial Jobless Claims data on Thursday. This week’s report comes after last week's number was the lowest since late July, so the markets will be watching to see if the good news continues. Finally on Friday, the government's Jobs Report for September will be released with Non-Farm Payrolls and the Unemployment Rate. Beyond the jobs data, the minutes from the Fed’s latest Federal Open Market Committee Meeting should also garner attention on Wednesday. Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result. The chart below shows Mortgage Backed Securities (MBS), which are the type of Bond that home loan rates are based on. When you see these Bond prices moving higher, it means home loan rates are improving — and when they are moving lower, home loan rates are getting worse. To go one step further — a red “candle” means that MBS worsened during the day, while a green “candle” means MBS improved during the day. Depending on how dramatic the changes were on any given day, this can cause rate changes throughout the day, as well as on the rate sheets we start with each morning. As you can see in the chart below, Bonds and home loan rates have been on an improving streak since the Fed announced QE3. I’ll be watching closely to see what happens this week.

The Mortgage Market Guide View...

Hispanic Heritage Month: Sept. 15 – Oct. 15, 2012 The Hispanic population is the largest ethnic or minority race in America. In fact, 52 million Hispanics now live in the United States…which is more than double from 20 million in 1990. By the year 2050, the Hispanic population in the U.S. is estimated to reach 132 million! Reach out… Now’s the perfect time to connect with your Spanish-speaking clients and potential clients by wishing them a happy Hispanic Heritage Month this September 15 through October 15! A little history… Originally authorized by President Lyndon Johnson in 1968 as National Hispanic Heritage Week, the observance was expanded to a month-long celebration in 1988. September 15 was chosen as the first day of the celebration because it is celebrated as the independence day of five Latin American countries: Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua. In addition, Mexico celebrates its independence on September 16, and Chile celebrates on September 18. Discover more… Read stats and facts about Hispanic Heritage Month on the U.S. Census Bureau’s facts and features page! You can even pass the link on to clients and referral partners who might be interested in learning more. Economic Calendar for the Week of October 01 - October 05 Date ET Economic Report For Estimate Actual Prior Impact Mon. October 01 10:00 ISM Index Sept NA 49.6 HIGH Wed. October 03 10:00 ADP National Employment Report Sept NA 201K HIGH Wed. October 03 10:00 ISM Services Index Sept NA 53.7 Moderate Wed. October 03 02:00 FOMC Minutes Sept NA NA HIGH Thu. October 04 08:30 Jobless Claims (Initial) 9/29 NA NA Moderate Fri. October 05 08:30 Non-farm Payrolls Sept NA 96K HIGH Fri. October 05 08:30 Unemployment Rate Sept NA 8.1% HIGH Fri. October 05 08:30 Hourly Earnings Sept NA 0.0% HIGH Fri. October 05 08:30 Average Work Week Sept NA 34.3 HIGH

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