Slow and Easy, for Now

It sure feels like the middle of summer.  It felt that way last week; it feels that way this week. There’s not much going on.

We mentioned that with the Brexit vote fading into a distant memory and the lack of any important news pending domestically or internationally, financial markets would likely go on hiatus. We even predicted that lending rates we saw last week would persist into this week and beyond.

So far, we’re right (but when predicting interest rates, you never want to do a victory lap). If you asked for a quote on a conventional 30-year mortgage last week, something between 3.5%-to-3.625% would have been a reasonable reply. That range has held this week (though we should note that the 3.375%-to-3.5% range is gaining in popularity).

We shouldn’t be too surprised rates hold current levels. Second-quarter gross domestic product (GDP), reported last Friday, wasn’t particularly encouraging. Growth posted at a 1.2% annualized rate, below most economists’ expectations.

No need to fret, though. Within the GDP report, nuggets of good news could be found, most could be found in housing. Residential investment remains robust. The segment includes new single-family structures, multifamily structures, home improvement, brokers’ commissions, and other ownership transfer costs.

Focusing on single-family-structure investment, it posted at $242 billion for the second quarter. That’s a slight drop from the first quarter, but year over year investment is up 7.3%. Current investment in single family homes is roughly 1.3% of GDP. From a historical perspective, that’s low. Annual single-family-structure investment has historically averaged between 2% and 2.5% over the past 55 years.

People frequently overlook this fact – investment drives the economy as much as spending. Residential investment should continue to do its part to drive the economy forward.

Information provided by Jessica Regan.

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