Positive GDP News a Wake-Up Call for Home and Mortgage Shoppers
An unexpectedly strong revision of second quarter gross domestic product (GDP) stood out amid an otherwise mixed bag of economic news of interest to home and mortgage shoppers.
In fact, this strong GDP number should be something of a wake-up call, or a call-to-action, for anyone who has been putting off buying a house. It may not pay to delay any further before starting to look for a house and compare mortgage companies.
Mixed News on the Housing and Mortgage Front
Besides the strong GDP performance, housing and mortgage news was otherwise mixed. A good example was an FDIC report on the health of banks and thrifts. On the surface, the headlines about this report were grim: 117 banks and thrifts were in financial trouble, and industry profits were down some 86 percent for the second quarter of 2008, compared with the corresponding quarter of 2007. Reading a little deeper, however, revealed plenty to mitigate the sour first impression of this report. Those 117 troubled banks and thrifts were out of a total of 8,500 institutions industry-wide. The industry’s profits, even after that 86 percent drop, were still a total of $5 billion — and this was after those institutions set aside more than $50 billion during the quarter to cover losses from bad loans.
In short, despite the high-profile troubles of some institutions, it sounds like there is still plenty of capital in the system to keep the credit markets liquid. As bad as things are, the vast majority of institutions are not in trouble, the industry as a whole is still profitable, and a sizeable reserve has been set aside to handle problems. Tellingly, the number of troubled banks was described in the FDIC report as being the largest number since 2003 — which was pretty much a boom time for the housing and mortgage industry. Clearly, that number of troubled institutions is not crippling for the market as a whole.
In other news, mortgage application volume was up slightly, after reaching a new low the week before — again, a mixed message. Application volume can be an important leading indicator for the housing market, but the weekly volume releases have been too volatile for one to conclude anything from the latest figures.
GDP, Mortgage Rates, and the Housing Market
This brings us back to the GDP release. After shrinking slightly in the fourth quarter of 2007, and barely growing in the first quarter of 2008, the latest figures for second quarter GDP surprised economists with an annualized increase of 3.3%. Good news for growth, but in the topsy-turvy world of economics, it could be a signal for home shoppers to get moving. Both housing prices and mortgage rates tend to rise during economic expansions, so after a long stretch of falling housing prices and reasonably-low mortgage rates, things could change if this economic trend takes hold. If the economy is indeed strengthening, potential home and mortgage shoppers should not be complacent about conditions remaining in their favor indefinitely.
Tags: 2008, economy, housing prices, mortgage, mortgage rates
