Mortgage rates decreased by four basis points according to the Freddie Mac Primary Mortgage Market Survey released on October 9th. Over the last few weeks, mortgage rates have settled in at their lowest level in about a year. There is growing evidence that homebuyers are digesting these lower rates and are gradually willing to move forward with buying a home, which is boosting purchase activity.
Mortgage applications decreased 4.7 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending October 3rd. “With mortgage rates on fixed-rate loans little changed last week, refinance application activity generally declined, with the exception of a modest increase for FHA refinance applications,” said Mike Fratantoni, MBA’s SVP and Chief Economist. “Refinance volume remains somewhat elevated relative to levels of a month ago. Purchase activity declined by about 1 percent for the week but continues to show moderate growth on an annual basis, and stronger growth for FHA loans, favored by first-time homebuyers.” Added Fratantoni, “The ARM share increased to 9.5 percent last week from 8.4 percent the prior week. Our survey shows 5/1 ARM rates are averaging almost a percentage point below 30-year fixed rates, and this differential is leading more purchase and refinance applicants to consider ARMs.”
Federal Reserve officials in September were strongly inclined to lower interest rates, with the only dispute seeming to be over how many cuts were coming, meeting minutes released Wednesday showed. The meeting summary indicated near unanimity among participants at the Federal Open Market Committee that the central bank’s key overnight borrowing rate should be cut due to weakness in the labor market. They split, however, on whether there should be two or three total reductions this year, including the quarter percentage point move approved at the Sept. 16-17 meeting. “In considering the outlook for monetary policy, almost all participants noted that, with the reduction in the target range for the federal funds rate at this meeting, the Committee was well positioned to respond in a timely way to potential economic developments,” the minutes stated. “Participants expressed a range of views about the degree to which the current stance of monetary policy was restrictive and about the likely future path of policy,” the document added. “Most judged that it likely would be appropriate to ease policy further over the remainder of this year.”
Shutdowns of the federal government usually don’t leave much economic damage. For now, financial markets are shrugging off the impasse as just the latest failure of Republicans and Democrats to agree on a budget and keep the government running. However, let’s look at a range of possible economic effects:
A couple of days: Financial markets may experience some fluctuation, but that likely won’t be significant if funding is restored before too long. Workers will get paid back, and ideally, there’s not much of an economic lag.
Longer term: Federal workers get furloughed, and the federal government delays some spending during a shutdown. But when the funding comes back, workers go back to their jobs and collect back pay, and the government belatedly spends the money it had withheld. It’s pretty much a wash.
Very long term: If there are significant disruptions to sectors like air travel due to shutdown-related circumstances during the 2018-2019 shutdown, that can mean more trouble for industries. But even in that 35-day shutdown, the longest in U.S. history, the Congressional Budget Office estimates that just 0.02% was shaved off the 2019 U.S. gross domestic product, the nation’s output of goods and services.
