We received the first look at the estimated GDP for the first quarter of 2020, and the number was worse than anticipated. While the market was expecting to see a decline of 3.7%, GDP actually declined 4.8%. When you consider that the US economy was shut down in the last month of the quarter, one can only imagine just how big of a hit the GDP will take in the second quarter of this year. It seems entirely possible that up to a 40% is possible. Given that GDP is the most significant measurement of the strength of the US economy, this is not good news.
Pending Home Sales, which measures contracts on existing homes, fell by 20.8% in March. Much worse than the 10% drop the market anticipated. Although most of this can be attributed to people not wanting to make any major life decisions until the future is a bit more clear, it will be interesting to see the impact a tightening mortgage industry will have on future reports. With many of the riskier loans no longer being offered, this will eliminate a reasonable number of potential home buyers. That will cause a drag on demand, which has lead to softening in the past of home value appreciation. Although most economists don’t anticipate a drop in prices, I do. However, even with home values softening, locking in a rate at current mortgage pricing still makes sense for many home buyers.
With little incentive to float, we will maintain a locking bias.