GDP and Mortgage Purchase Applications

Each day the Research staff takes a look at recently released economic indicators, addressing what these indicators mean for REALTORS® and their clients. Today’s update discusses GDP and mortgage purchase applications.

  • The all-encompassing measure of economic activity, Gross Domestic Product (GDP), was revised up a notch to 3.0 percent growth in the fourth quarter of 2011.  In short, everyone’s income and businesses combined, after accounting for inflation, rose by 3.0 percent on an annualized pace.
  • For the year as a whole, the GDP expanded by 1.7 percent in 2011.  The historical average growth rate is about 3 percent.
  • GDP expansion arose from rising consumer and business spending.  A slight improvement in net exports helped as well.  A sizable addition in business inventory also boosted GDP in the fourth quarter, which unfortunately will work the other way in the first quarter of 2012.  Without the inventory addition, the GDP would have grown by only 1 percent.  Large cutbacks in government spending, primarily related to national defense, held back the latest GDP.
  • The data is a lagging indicator of what has happened several months back.  Fresh GDP data for the first quarter will be released in about a month and is expected to show some slowdown to about a 1.5 to 2.0 percent annualized growth rate based on the recent stream of economic data.
  • In separate data news, mortgage applications to buy a home rose 8 percent in the past week.  This would be consistent with other improving housing metrics.  Keep in mind that about one-third of all home purchases have been all-cash and thereby completely bypass the mortgage process.  Also the data is about applications and not approvals, so home sales closings and mortgage activity will not directly match up.  Even with the latest uptick in mortgage applications, the overall trend in the past 3 years has been essentially flat, without a meaningful up or down.
  • Mortgage applications for refinances fell slightly by 2 percent.  Going forward, expect some uptick in refinance activity in the first half of the year because of government programs to help the underwater homeowners.  But the refi business will quickly dry up towards the end of the year and next year as mortgage rates will inevitably rise.  Mortgage business at that point will be primarily for home purchases.

Lawrence Yun, PhD., Chief Economist and Senior Vice President

Lawrence Yun is Chief Economist and Senior Vice President of Research at NAR. He directs research activity for the association and regularly provides commentary on real estate market trends for its 1 million REALTOR® members.

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