US Strong, Japan Not So Much

This week, economic data outside the US had a greater influence on mortgage rates than relatively strong domestic data. Economic growth around the world continued to fall short, and this helped mortgage rates end the week a little lower.

A big miss this week was reported in Japan. Third quarter Japanese GDP declined at an annualized rate of 1.6%, while investors had been expecting positive growth of more than 2.0%. This follows recent reports showing a slowdown in China and practically no growth in Europe. 

A big question for investors and Fed officials is how large an effect this will have on the US, which has been on track for sustained GDP growth above 3.0%. Foreign trade makes up less than 15% of US economic activity, compared to 50% in Germany and 25% in China, which will limit the impact somewhat. For mortgage rates, slower global economic growth is generally positive, since it helps keep prices for goods and services low.

Single-family Housing Starts also are at the highest level of the year, while Building Permits rose to the highest level since June 2008. Finally, the NAHB Housing Index showed that home builders are very confident about both current and future market conditions. These reports are leading indicators of future activity, which bodes well for the housing market in coming months.

Next week, revisions to third quarter GDP will be released on Tuesday. The bulk of next week's data will come out on Wednesday ahead of the holiday. The packed list will include Durable Orders, Personal Income, Core PCE inflation, Chicago PMI Manufacturing, New Home Sales, and Pending Home Sales. In addition, there will be Treasury auctions on Monday, Tuesday, and Wednesday. Mortgage markets will be closed on Thursday and will close early on Friday in observance of Thanksgiving. 

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