Last week, the Dow enjoyed significant gains and broke the 12,000 mark for the first time since early August. The market benefitted from a European debt deal and better-than-expected Gross Domestic Product (GDP) growth in the third quarter.
On the home front, the US economy grew at a 2.5 percent annual rate from June through September. This is the strongest quarter of 2011 and the best we have seen in a year. While positive, the number is still less than the first and second quarters of 2010, which saw growth near 4 percent. The number is enough to ease double-dip recession fears, but there are still a number of reasons to be cautious. Unemployment remains over 9 percent and disposable income actually fell in Q3. We will need to see more positive numbers before we are convinced of an optimistics economic outlook.
European debt uncertainty has dragged on the market for months, and the recent debt deal has given cause for optimism of much needed stability from the region. European leaders persuaded private banks and insurers to accept a 50 percent loss on Greek government bonds, which will cut Greece’s debt by 100 billion Euros and bring debt down to 120 percent of GDP (from 160 percent). The EU is also aiming to complete a package of full aid for Greece by the end of the year to total 130 billion Euros. Euro zone leaders also agreed to increase the European Financial Stability Facility to 1 trillion Euros. The fund had dropped to 290 billion Euros after giving aid to Ireland, Portugal and Greece.
A few notes about the housing market. Rob Chrisman puts out Daily Mortgage News and Commentary on his Blog, and is an excellent source of information. In a recent post he noted that CoreLogic estimates that about 53 percent of borrowers with equity in their homes are paying above market rates, which is defined as the current average plus 1 percent. Nearly 36 percent pay more than 5.5 percent, and nearly 17 percent pay above 6 percent. These numbers suggest that plenty of home owners can still benefit from refinancing.
Also from Mr. Chrisman – September saw a 5.7 percent increase in New Home Sales, which is the highest rate in five months.
Rates this week have ticked up as influenced by the strong market showing. We have the 30 year fixed at 3.750 percent (3.902 percent APR), and the 15 year fixed at 3.000 percent (3.345 percent APR).
We will be looking at October’s economic numbers over the coming weeks as they are released. This should give us some further context for the market’s strong finish to the month. Check in with our Facebook and Blog for this information as it comes.