In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses mortgage applications and worker productivity.

• Mortgage applications to buy a home fell slightly in the past week. Though there is natural volatility in this data from week-to-week, the broad trend has shown no meaningful increase. This is surprising in that both new and existing home sales have been rising in the past 12 months.
• The rise in all-cash transactions over the past few years partly explains the rise in home sales but no commensurate rise in mortgage activity. Also, the data measures only mortgage applications and has no information about approval rates.
• Mortgages for refinances, however, have been rising as mortgage rates touched a new bottom from the euro-zone debt crisis. Refinances will help the broader economy as more homeowners will have extra leftover money to pump into the economy. However, in the short term mortgage lenders will direct staffing to grind out refinances and will therefore be in less of a hurry to process mortgage applications for home purchases. Though counterintuitive, a slight rise in mortgage rates is expected to help home sales.
• In separate economic news, worker productivity slid in the first quarter. The hiring of additional workers did not lead to a commensurate rise in overall production. Though a disappointing quarter, worker productivity did still squeeze out a slight gain of 0.4% from one year ago. On average, each U.S. worker is able to produce about 2% more every year from the same labor hours due to improved technology and better business practices.
• Though less talked about compared to other economic data, the rise in productivity will be the main source of rising worker salaries over the long-haul. Once U.S. productivity started to outpace Britain’s about a century ago, the U.S. economy easily surpassed that of the once mighty British Empire. Back in the 1980s, there was talk of Japan overtaking the U.S. but that never happened because U.S. productivity outpaced that of Japan. Today, however, worker productivity in China is rising notably faster than that in the U.S., such that an average worker salary in China could double to about $12,000 in 10 years. If that happens, and given China being four times more populous than the U.S., the Chinese economy would have overtaken the U.S. at least in terms of the size of the total economic pie.