30-year mortgage rates settled in below 6.0% for the second consecutive week, amid continued discussion of how much the economy would slow:

• The latest GDP estimate indicated that the U.S. economy slowed to nearly a standstill in the final quarter of 2007.
• Housing prices continued to slide, with year-over-year declines now reaching double digits.
• Meanwhile, President George W. Bush reminded Americans that help may be on the way, in the form of tax rebate checks that are due to start arriving in May.

When considering what to make of all these reports, mortgage shoppers would do well to minimize discussions of the past and the future, and focus on the status of the here and now. In that light, there are concrete indications that this is a good time to act.

The Past Burns Twice

There’s an old schoolboy prank called: “ever see a match burn twice?” A match is lit, and it burns. It is blown out, then the hot matchhead is touched against the victim’s arm. It burns, again. Economic data releases are a lot like this old prank.

Virtually all economic data releases come out after the fact, and often in multiple versions over a period of weeks or months. For example, GDP, a broad measure of domestic economic activity, is released three times for every calendar quarter measured. There is an advance release one month after the end of the quarter, a preliminary release two months after the end of the quarter, and a final release three months after the end of the quarter. Make that at least three times, since “final” releases have been subject to subsequent revision in some cases.

The point is, when the news reported on GDP in the last week of March, it was referring to economic activity that took place between October 1st and December 31st of 2007. In other words, it is news that was three-to-six months old, but was reported as a fresh harbinger of an economic slowdown. In this way, the past burns twice — at least. 

What of the Future?

If the past is gloomy, one rebuttal is that at least the future will be brighter, once lower interest rates take effect and people receive their tax rebate checks. Perhaps, but if all does go according to plan, this may not reward home and mortgage shoppers who waited for this turnaround. 

A rebound in the economy stands a good chance of seeing both housing prices and interest rates turn higher. In short, waiting for good news might turn out to be bad news for prospective home buyers.

What the Present Has to Offer

If the future is uncertain and much of the econonomic news is actually reporting on the past, then the best course for mortgage shoppers to take is to focus on what they know about the present. Prospective home buyers have to make their own judgements about their resources and income, but as for current conditions in the housing market, home prices are at a 10% discount from a year ago, and 30-year mortgage rates below 6.0% are rare animals. Those are two clear reasons to start shopping now.

Tags: housing prices, interest rates, mortgage, mortgage rates, US economy

This entry was posted on Thursday, March 27th, 2008 at 11:09 am and is filed under Weekly Wrap-Up. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.