Economic Summary – Week October 2, 2013

Hopes are riding high that our leaders on Capitol Hill will be able to reach an agreement toward a resolution on the debt ceiling debate and budget battle. Read on to learn what this could mean for home loan rates.

Congress continues to debate whether to raise the debt ceiling, which is now at $16.7 trillion. Although the debt limit deadline was technically October 1, the Treasury Department has said that it has enough funding to operate as usual until October 17. Failure to raise the debt limit by October 17 would most likely lead to an unprecedented default on the United States’ bills.

The uncertainty over this issue helped mortgage bonds improve last week, as investors moved their money to safer investments like bonds as they often do in times of uncertainty. Since home loan rates are tied to mortgage bonds, this also helped home loan rates improve last week.

In housing news, Case Shiller reported that its 20-City Home Price Index for July rose by 12.4 percent compared to July 2012. This is the fastest annual pace since 2006. However, from June to July there was only a 1.8 percent increase, which is the smallest monthly gain since March, as 15 of the 20 cities saw slower growth. This slowdown can be attributed to the rise in home loan rates over the past few months. New Home Sales did increase by nearly 8 percent in August from July.

Also of note, the government reported that the final reading on Q2 Gross Domestic Product was in line at 2.5 percent and unchanged from the second reading. Inflation as measured by Personal Consumption Expenditures remained moderate in August while Personal Incomes and Spending were in line with estimates. These readings give the Fed cover to continue its bond purchase program known as Quantitative Easing which has helped home loan rates remain attractive.

All of this news reinforces the point that now is a great time to consider a home purchase or refinance, as home loan rates remain near historic lows.

Forefor the week

The debt ceiling debate, budget fight, and the Jobs Report for September are three key items to look for this week.

·  Economic data kicked off on Monday with manufacturing numbers from the Chicago PMIreport, followed by national manufacturing data from the ISM Index on Tuesday. 

·  Wednesday will bring the first leg of the week's jobs data with the ADP National Employment Report. 

·  As usual, Weekly Initial Jobless Claims will be reported on Thursday. Claims have averaged near 300,000 the past three weeks.

·  ISM Services Index, a national non-manufacturing index, will also be released on Thursday. 

·  That leads us to Friday's Non-farm Payrolls and the Unemployment Rate, which will be closely dissected by both Wall Street and the Federal Reserve. 

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. 

Courtesy of:  VAL TIEMANN Sr. Mortgage Loan Officer Bank of America