Atlanta Real Estate Blog

Mortgage Market Comment for 1/29/2010

4th Quarter GDP

Today's most important report was the initial reading of the 4th Quarter Gross Domestic Product (GDP).  It revealed a 5.7% annual rate of growth during the last quarter of 2009.  This was much better than expected and the fastest pace in six years, indicating that the economy is likely growing at a faster pace than many had thought.  That creates a negative for bonds because once the economy begins to gain momentum, inflation concerns will rise in the markets.  Since inflation is the number one nemesis of the bond market, bonds tend to suffer when inflation is strengthening, leading to higher mortgage rates.

Inflation Risk?

Preventing a sizable sell-off in bonds was a much lower than expected inflation reading within the data.  That inflation reading came in half of forecasts, meaning that inflation isn't a concern yet.  However, many experienced traders and analysts firmly believe that it will follow shortly if economic activity continues to grow at a pace similar to what today's GDP reading showed. Therefore, we have seen some selling in bonds, but considering the headline GDP reading, we should be content with this morning's trading.

Employment Costs

The second piece of data that came out this morning was the 4th Quarter Employment Cost Index (ECI).  It revealed a 0.5% increase in employer costs for wages and benefits.  While this was higher than expected, it really has not had much of an impact on bond trading or mortgage rates because the GDP news is bigger news.

Consumer Sentiment

To cap off today's relevant economic data, the University of Michigan's Index of Consumer Sentiment for January was a higher than expected revision.  This index measures consumer confidence, which is thought to indicate consumer willingness to spend.  The 74.4 reading (Highest in 2 years) indicates that consumers were more optimistic about their own financial situation this month than many had thought.  Strengthening confidence usually translates into more consumer spending, fueling economic growth.  However, this report doesn't carry enough power to heavily influence the markets, especially following the initial GDP reading for the quarter.

Other Highlights - Things Looking Up Overall

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Q4 GDP Deflator    + 0.6%

Q4 PCE Price Index  + 2.7%

Q4 Business Investment  + 2.9%

Q4 Housing Investment   + 5.7%

Q4 Employment Cost Index  + 0.5%

Q4 Software and Capital Expenditures  + 13.3%    (WOW)

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Economy improved more than expected in Q4, 4th Quarter Gross Domestic Product(GDP), 4th Quarter Employment Cost Index (ECI), Consumer Sentiment, Inflation Risk, home buyer, home seller, University of Michigan, ATLShortSales.com