Mortgage Market Guide Weekly Issue 5

Last Week in Review: There was important news on the labor market and the state of the economy. Find out how home loan rates were impacted.

Take two steps forward and one step back. That popular catchphrase is a good description of our economy of late, as good economic news continues to be tempered by some negative reports.

There was mixed news in the Jobs Report for January: 157,000 jobs were created, which was below expectations, while the unemployment rate ticked up to 7.9% from 7.8%. On the flip side, the November and December job numbers were revised higher by 127,000. In addition, the benchmark revisions showed that employers added 335,000 jobs in 2012, more than was originally reported. That brought the average rate of job gains per month in 2012 to 181,000, up from the 175,000 per month average seen in 2011.

Overall, the labor market continues to improve, but at a very slow pace. And seeing the unemployment rate tick higher is yet another reason why the Fed said last week that their Bond purchase program (known as Quantitative Easing) will continue.

In other important news, Fourth Quarter Gross Domestic Product (GDP) showed negative growth for the first time since the second quarter of 2009. While external factors like Superstorm Sandy did have an impact on this reading, overall growth has been limited to just 2% or so annually. This is part of the reason why the unemployment rate remains as elevated as it is.

What does this mean for home loan rates? First, it's important to remember three things. First, home loan rates are tied to Mortgage Bonds, and as Bonds improve, home loan rates improve. Second, inflation is the arch enemy of Bonds (and therefore home loan rates) as inflation reduces the value of fixed investments like Bonds. Third, Bonds (and therefore home loan rates) typically benefit when there is weak economic news, as investors tend to move their money into safer investments like Bonds.

The question is: With the Fed still buying $85 billion in Mortgage Bonds per month, no inflation, and weak economic readings, why aren't Bonds and home loan rates improving? The answer: Stocks had their best January in over two decades. As long as the Fed continues to pump money into the economy, the bias in the markets will likely be towards riskier assets like Stocks.

However, home loan rates remain near historic lows, which means now is still a great time to consider a home purchase or refinance. Let me know if I can answer any questions at all for you or your clients.

Forecast for the Week: In the absence of any major economic data points and with earnings season coming to an end, investors will be looking for the next catalyst to impact the markets.

After last week's packed economic calendar culminating with Friday's mixed Jobs Report, this week's calendar is light.

• Look for the ISM Services Index on Tuesday.
• Weekly Initial Jobless Claims will be reported as usual on Thursday. Last week's reading showed that initial claims jumped 38,000 to 368,000 in the latest week.
• Also on Thursday, Q4 2012 Productivity will be released

Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result. The chart below shows Mortgage Backed Securities (MBS), which are the type of Bond that home loan rates are based on.

When you see these Bond prices moving higher, it means home loan rates are improving -- and when they are moving lower, home loan rates are getting worse.

To go one step further -- a red "candle" means that MBS worsened during the day, while a green "candle" means MBS improved during the day. Depending on how dramatic the changes were on any given day, this can cause rate changes throughout the day, as well as on the rate sheets we start with each morning.

As you can see in the chart below, Bonds attempted to stabilize last week. I'll continue to watch the markets closely.

Chart: Fannie Mae 3.0% Mortgage Bond (Friday Feb 01, 2013)

View: The cost of getting the flu is nothing to sneeze at. Be sure to share the important information below with clients and colleagues.

 Monitor the Flu Online

Flu season is here...and the cost of the season is nothing to sneeze at! In fact, Americans spend approximately $4 billion on over-the-counter cold and flu remedies. That doesn't even factor in how much time and productivity is lost on sick-time in the workplace or co-pays for doctor visits and prescriptions.

But with the two websites below, you can stay up to date on the latest flu information in your area and even add your data to help others.

View Flu Activity:

You don't have to wonder if the flu is prevalent in your state or search for long complicated reports. Each week, the Centers for Disease Control and Prevention (CDC) produces a Flu Activity Map. The map displays the level of flu activity across the United States and is based on data reported from state epidemiologists. The map also allows you to view previous weeks, so you can compare the spread of flu activity over time.

Contribute Your Data:

On the "Flu Near You" website, you can complete a brief weekly survey that may help all of us learn more about the flu. When a case is reported, the map registers a "pin" in the map - and you can even click on that pin to learn more about the symptoms or severity of the case! The site is completely free to use. And the information on the site will be available to public health officials, researchers, disaster planning organizations and anyone else who may find this information useful.

So if you're concerned about being sidelined by the flu, take a few minutes to check out the websites above. You may even want to consider passing the information on to your friends, family members, or even your clients.

Economic Calendar for the Week of February 04 - February 08

The material contained in this newsletter is provided by a third party to real estate, financial services and other professionals only for their use and the use of their clients. The material provided is for informational and educational purposes only and should not be construed as investment and/or mortgage advice. Although the material is deemed to be accurate and reliable, we do not make any representations as to its accuracy or completeness and as a result, there is no guarantee it is without errors.

As your mortgage professional, I am sending you the MMG WEEKLY because I am committed to keeping you updated on the economic events that impact interest rates and how they may affect you.