In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses GDP growth.

• The economy hit a soft patch in the latest report with GDP growing by only 2.2 percent on an annualized basis.  This all-encompassing measure on everyone’s income all combined needs to grow by at least 3 percent to assure consistent solid growth in jobs.

• Even though expansion momentum slowed, the economy is in no danger of falling into a recession with people losing jobs on net because the positives clearly outweigh the negatives at the moment.   Consumers have slowly opened their wallets, and consumer spending rose 2.9 percent.  Companies held back spending in the first quarter, but this is likely to be temporary given that corporate cash reserves are sky-high.  And, more importantly, the recovering housing market will add meaningfully to GDP growth this year for the first time in 6 years.
• On the negative side, military spending cuts led to an overall lower decline in federal government spending.  Spending cuts at state and local governments also forced GDP down.
• GDP growth rates in the upcoming quarters are expected to be about the same: sluggish to moderate, and neither robust nor contracting.  At this speed, the unemployment rate will likely go down to around 7.8% by the end of the year.

In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses mortgage purchase applications.

• Mortgage applications for home purchases declined notably by 11 percent in the past week according to the Mortgage Bankers Association.  The data does not appear to jive with increased home sales across many parts of the country.
• The rather big decline is coming off of several consecutive weeks of moderate increases.  Despite some mild swings, this data has been moving mostly sideways (neither consistently rising nor falling) over the past 18 months.  Home sales by contrast have been consistently up by 5 to 10 percent in 2012.
• One has to be mindful that home sales closings and mortgage applications can diverge, because there is no data on actual approvals of those mortgage applications.  In addition, there has been a big increase in all-cash deals in the past 3 years.  A good one-third of home sale transactions have been all-cash, thereby completely bypassing the mortgage process.
• Refinance applications rose a notch.  Mortgage brokers will encounter some upturn in refinance business over the next several months because of a new federal policy to help responsible homeowners tap into low rates even if the homeowner is underwater.  Simply put, someone with a 6 percent mortgage rate should be able to refinance into the prevailing rate of 4 percent provided that the person has been current on mortgage payments.  Realtors® should identify their past clients and inform them of the possibility.
• Refinance activity is expected to quickly dry up towards the end of the year and into 2013 because of the long term interest rates.  Mortgage business by that time will be mainly from home purchase activity.