How the US Economic Growth Affects Mortgage Rates

The US economy is growing once again at a steady pace.  The Bureau of Economic Analysis released its early predictions of GDP growth for the quarter, which report the economy grew by 2 percent in the third quarter (July through September), beating analysts’ expectations of 1.8 percent.  The surprising higher growth isn’t the only good news for the economy; it also represents the 13th straight month of increases in economic growth.  The improvements are due to an increased level of consumer consumption, including in the housing market, as well as higher government expenditures.

The improved economic outlook is also affecting fixed mortgage rates.  Previous reports from housing firms such as Freddie Mac reported mortgage rates had reached new record lows over the last few weeks to stimulate confidence in the housing market.  The news that the economy is showing signs of improvement has provided upward momentum on long term mortgage plans.  The 30 year fixed mortgage rate closed the week at 3.41 percent, up 0.04 basis points from a week earlier, while the 15 year fixed rate rose 0.06 points from a week ago to 2.72 percent.  However, despite the upward movement, both mortgage plans remain well below the rates they were at a year ago.

The healthier economic outlook is easing concerns that domestic growth is still weak.  Improved consumer spending, which economists say accounts for 70 percent of US economic activity, highlights strength and confidence in the US economic outlook.  It is because of this improved optimism that is increasing, albeit slightly, mortgage rates for homeowners.  With less concern the economy is heading for collapse, the belief in the housing market is that consumers can afford a little more on a home.  As the economy continues to grow, mortgage rates can be expected to shift upward with it.

As a result of the expected mortgage rate increase, analysts are encouraging Americans to lock in at an affordable rate now.  Home sales have already begun to improve, and pending data suggests those numbers will continue to reflect stronger sales volume.  The Home Sales Index suggests 2012 will end on a high note in the housing market with higher home prices to balance the improved sales.  Before the improvement hits full swing, encouragement is being made to lock in now.