Last Week in Review

If at first you don't succeed, try, try again. Last week, that popular idiom could have applied to the Gross Domestic Product (GDP) Report. Read on to learn why... and how all the week's news impacted Bonds and home loan rates. The Advanced GDP reading - or first of  three readings - for the 4th Quarter of 2011 came in at  2.8%, a bit  below  expectations of 3.2%. This  number will be  revised two more times, but if the final GDP  remains at  2.8%...then the  overall GDP for 2011 would be a scanty 1.57%. That is certainly a "Gross" Domestic Product, whenyou consider that the government has underwritten more than half of  that economic growth with the Payroll Tax benefit.  Also in the news last week, the Fed's Policy Statement after its regularly scheduled Federal Open Market Committee meeting was pretty much the same story as  recent Statements, including stable long-term inflation expectations, a tepid economic recovery, and fragile job market. But there was one big exception to their norm. The Policy Statement said there will be "exceptionally low levels for the Federal  Funds Rate at least through late 2014." This is a huge change from the previous  statements of "low rates until mid-2013."  On the surface, extending the zero interest policy until 2015 tells us the Fed thinks  the economy will just be slogging along, and accommodative monetary policy will be required to keep the economy growing at least at a modest pace. One could argue that recent economic data is better of late and that all this loose monetary  policy is unnecessary. But the Fed has spoken, and as the old adage goes: "Don't fight the Fed."  In news out of Europe, yields in European Bonds have come down…and by quite a bit. This sparked some optimism that Europe's Long-term Refinance Operation (LTRO) has helped alleviate some pressure in the peripheral countries in the Eurozone, like Spain and Italy. So what's the takeaway? In honor of the upcoming  Super Bowl, here's a football analogy: think of the LTRO as a super punt or  "kick of the can" down the road. Europe needs to play a serious offensive line by  creating a tighter fiscal union, implementing austerity measures, and developing  growth strategies to help pay down the enormous debt.  The bottom line is that Bonds and home loan rates remain at historic best  levels, which means now is still a great time to purchase or refinance a  home. Let me know if I can answer any questions at all for you or your clients.

Forecast for the Week

Chart: Fannie Mae 3.5% Mortgage Bond (Friday Jan 27, 2012) Economic reports will be plentiful - and important - this week: The week kicks off Monday with the Core Personal Consumption Expenditure (PCE), which is the Fed's favored gauge of inflation. This report will be closely watched, since any hint of an uptick in inflation could push Bond prices lower and, in turn, move home loan rates higher. Manufacturing will also be in the spotlight with the Chicago PMI on Tuesday, followed by the ISM Index on Wednesday. Consumer Confidence will also be delivered on Tuesday. The ADP Private Employment Report will be released on Wednesday and comes before the government's total job's report on Friday. As usual, Initial Jobless Claims will be released on Thursday. This week's report comes after an uptick of 21,000 last week. Finally, on Friday the government's monthly Employment Report will be released. The Employment Report consists of Non-farm Payrolls, the Unemployment Rate, Average Workweek and Hourly Earnings. This is an important report that can have a big impact on the markets. So I'll be watching it closely. 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. As you can see in the chart below, Bonds and home loan rates remain near their historic bests. I'll be watching closely to see which way they move next.

The Mortgage Market Guide View...

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