Texas Mortgage Rate Update 7/31/2008
The Texas mortgage market rallied right out of the gate this morning after readings on second quarter economic growth and weekly jobless claims data landed short of investor expectations, reviving the flow of capital out of the stock markets and into the relative safety of bonds and mortgage-backed securities.
The government’s first estimate of second-quarter growth, its broadest measure of national economic activity, posted a 1.9% annualized reading, falling on the Texas mortgage market friendly side of most investors’ forecast for a growth rate of 2.0%. On top of the headline number, first-quarter growth was revised lower, moving to a reading of 0.9% from the earlier estimate of 1.0% and the economic growth rate for the last three months of 2007 posted a contraction of 0.2% versus an earlier reported expansion of 0.6%. No matter how one chooses to interpret this morning’s Gross Domestic Product report - it shows an economy tracing along the knife’s edge of a recession. In the convoluted world of mortgage interest rates, that’s a mortgage market friendly event.
The only major bright spot in this morning’s GDP figures was found in the inventory component - which showed businesses slashed their inventories by $62 billion during the second-quarter. The huge inventory reduction cut 1.9% off of the aggregate economic growth rate for the period. As Tony Crescenzi, chief bond analyst with Miller Tabak & Company points out, “This (the inventory reduction) bodes well for future growth.” “There is at least solace in knowing that inventories, which for decades immensely impacted the ups and downs of the business cycle, are in balance which will make any recovery happen more quickly.”
In a separate report the Labor Department said initial jobless claims for the week ended July 26th surged higher by 44,000. Most analysts had anticipated claims for unemployment benefits would drop by 11,000 during the period. A Labor Department spokesman said the weekly increase in jobless benefit claims was partly attributed to “an indirect result of the emergency unemployment compensation program.” The long and short of all this initial claims information is that the current numbers will not correlate well with prior figures, rendering the entire data set of little value for the next several weeks.
For the balance of the day I look for trading activity in the Texas mortgage market to tapper-off as mortgage investors put the finishing touches on their risk management strategies in front of tomorrow morning’s much anticipated July nonfarm payroll report. A headline drop of 75,000 jobs together with an uptick in the jobless rate to 5.6% is already priced into the market. If the actual numbers are approximatly close to the consensus, expect Texas mortgage interest rates to bounce around in a very narrow trading range. A more dramatic loss of jobs and/or a jobless rate of 5.7% (or higher) will tend to support fractionally lower rates while a better-than-expected performance from the labor sector (a loss of 65,000 jobs and/or a jobless rate of 5.5% or less) will likely cause investor prices to plunge and note rates to surge notably higher.