Most Everything Down

A slow week on the news front, and what little news there was wasn't especially good. 

Initial indications show that economic growth in the third quarter was nothing to write home about. Gross domestic product (GDP) growth posted at 1.5% on an annualized rate. This is considerably slower than the 3.9% growth posted in the second quarter. Admittedly, economists weren't expecting much – most expected growth to post lower than 2% – but what we got was even lower than most estimates. 

Residential investment was the noticeable bright spot in the GDP numbers. Investment continues to trend positively, having increased 6.1% for the third quarter. That said, we still need more of it. Residential investment currently runs at 3.5% of GDP. Historically, it runs between 4% and 5%. 

GDP growth could be crimped further by fewer home sales. The Pending Home Sales Index dropped 2.3% in September. The drop was due primarily to one of our frequent laments: Insufficient starter housing and starter housing that's expensively priced. The dearth of lower-end sales is pulling down the overall index. More important, it continues to pull down first-time buyers. 

Finishing the trifecta, mortgage applications posted lower last week. The Mortgage Bankers Association reported that both the purchase and refinance indexes fell 1%. Given the recent uptick in mortgage rates, we don't expect to see a pickup in activity when the MBA reports for this week. Still, application activity all around remains significantly elevated compared to this time last year. 

But will mortgage application activity remain elevated? The Federal Reserve is once again front-and-center and could alter the current market dynamic. We explain below.

Information provided by Jessica Regan.

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