Economist's Commentary: April 30, 2008

Quick Take on the Economy: April 30, 2008

By Lawrence Yun, NAR Chief Economist

Gross Domestic Product (GDP) expanded at 0.6 percent in the first quarter. The economy is generally considered to be in a recession if the GDP contracts for two straight quarters.
It matched growth rate for the fourth quarter of last year, but the rate is substandard. A normal healthy growth rate is 3 percent or higher.
The residential housing sector declined a whopping 27 percent from falling new home construction and soft home sales activity.
Consumer spending grew 1 percent, a sharp reduction in momentum from the near 3 percent growth rates of the past 6 years. Business spending stalled as well after robust expansion in the past four years.
Net exports were the only segment that showed solid growth. Exports rose 5.5 percent, easily beating imports, which rose 2.5 percent. Without the improving conditions in net exports, the economy would be contracting.

Mortgage applications for home purchases slid 5 percent in the latest week. It is down 20 percent from a year ago.
Mortgage applications for refinances fell 17 percent during the week and are down by 6 percent from a year ago.
FHA and VA loan applications are up 160 percent from a year ago for combined purchase and refinances.

The Fed reduced the short-term inter-banking borrowing rate by ¼ percentage point. This is likely to be the last rate cut. The Fed funds rate is now at 2 percent. It was 5.25 percent before the credit crunch back in August 2007.
The very low Fed funds rate is helping reduce the resetting ARM burden. But it has not help in measurably lowering the 30-year fixed mortgage rates.

The economy is slow but not in a recession as formally defined. There could, however, be continuing job losses for several months due to slow economic activity.
The falling mortgage activity is not comforting. This data measurement, however, is subject to volatility and has in the past year shown to be not a reliable indicator for home sales activity.
This is the last rate cut by the Fed this year. Expect rate hikes early next year.

This is one in a series of commentaries by the Research staff of the National Association of REALTORS®. Read more commentaries >

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