Mortgage Updates Provided by Bank of America & The DiMora Team

February 4, 2011

The housing market received a serving of good news last week, as New Home Sales reportedly rose 17.5% in December to come in better than expectations. Overall, the report demonstrated that housing continues to recover – albeit slowly. Despite that good news though, the markets were keyed in on another important event last week-- the release of the Fed’s Interest Rate Decision and Monetary Policy Statement.

As expected, the Fed made no change to the Fed Funds Rate and even the Policy Statement was pretty much the same. But that didn’t stop the markets from getting a little fired up about the release.

It’s important to understand that the Fed has to be very careful with how bullish their economic comments are, as they don't want to see long-term rates move higher. The Fed's comments couldn’t be categorized as bullish as they said "employers remain reluctant to add to payrolls" and "the housing sector remains depressed."

So why did bonds initially improve nicely on the news and then crumble later in the day? The answer is: not everyone in the trading pits is buying what the Fed is saying. Instead, some people believe the Fed is talking down the true underlying strength of the economy, so that it can justify injecting the full $600 billion of quantitative easing into the economy.

Last week, President Obama delivered his State of the Union Address to members of Congress. Although the President’s call for a freeze on discretionary spending for five years may appear to be bond bullish in that any reduction in the deficit would be good for bonds, the reality is that so much more has to be done to really get our long-term debt in check. And some of last week’s weakness in bonds was likely attributed to the feeling that the speech came and went without any real sense that the deficit is going to be reduced in a meaningful way, especially in the near term. The bond market probably would have liked the word "cut" in spending rather than "freeze," since a “freeze” suggests only a temporary halt in spending at current levels.

In the end, the news last week demonstrated that economic conditions are improving, but they are doing so gradually. As a result, the market remains volatile, as bonds and home loan rates remain extremely low for now.

January 21, 2011

Stocks enjoyed their seventh straight week of gains, due to the positive economic reports that have been streaming in. While this is certainly cause for celebration, an important question we need to consider is: what does this mean for home loan rates in the short and long term?

On the one hand, improvement in the economy is good news on the housing front, as once people feel better about keeping their job or getting a new job, home purchasing activity will rise, and values will follow. But on the other side of the coin, as the labor market and economy improve, home loan rates will have to gradually rise as well. And remember, this all ties in with the Fed’s plan to inject the full $600 billion into our economy as part of their latest round of Quantitative Easing (QE2).  Future homeowners stay tuned!!!

January 14, 2011

The Labor Department reported that 103,000 jobs were created in December, and private job growth was 113,000. While these numbers were below the recently ramped up expectations, they do show that the trend in the labor market is improving. Also noteworthy are the upward revisions to the prior two months readings, showing 70,000 more jobs created than had been previously reported.

While unemployment figures could expect to be lower when job-growth increases, the real shocker in the report was the size of the decline in the unemployment rate to 9.4%, which is the lowest unemployment rate since May of 2009.  Great news for 2011!

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