Last Week in Review

"We will open the book. Its pages are blank. We are going to put words on them ourselves. The book is called Opportunity and its first chapter is New Year's Day." Edith Lovejoy Pierce. And as we begin a New Year, fresh with opportunity - here's what you need to know about the last week of 2009. The holiday shortened week had some fireworks, and not just those ringing in the New Year. The Treasury Department auctioned a whopping $118 Billion in T-Notes last week, and the added supply helped bring on some volatility in Bonds. And although the financial markets in general have been quite volatile of late anyways, the potential for increased volatility is typically greater during a holiday week. This is because trading volume levels decrease, and with fewer traders and investors pushing transactions, it opens the door for exacerbated market moves, as one large trade can cause prices to rise or fall more sharply. In fact, volatility was present through a good part of 2009 - not to mention the last decade. Stocks experienced a roller coaster ride during 2009, hitting Bear market lows in March...only to soar 60% higher since March 9th.

Meanwhile, 2009 also brought some of the best home loan rates ever seen in the history of the US, but things have worsened over the last month. This is in part because the Federal Reserve is winding down their Mortgage Backed Security purchasing program...right at a time when there is an increased volume of Mortgage Backed Securities coming to market.

So why are there more coming to market right now? It takes about four months for home loan originations to become securities - and summer originations were light, allowing the decreased Fed purchases during the fall to still help handle the flow of Mortgage Backed Securities coming to market at that time. But loan origination volume increased in late summer and early fall, due to lower home loan rates as well as the perceived expiration of the Home Buyer Tax Credit, which has since been extended. This increased volume of home loans are now securitized and hitting the markets, at a time when the Fed is buying less. As with any item, when there is lots of supply - in this case, the increased volume of Mortgage Backed Securities - and diminishing demand - i.e. the Fed buying less and less - Economics 101 tells us that the price of that item will subsequently go down. And as Mortgage Backed Security or Mortgage Bond prices go down, home loan rates go up, which is what we saw happen throughout December. While rates were able to end last week at about the same place as they began the week, they did worsen about .50% from the beginning of December to the end.

THE NEW YEAR IS THE PERFECT TIME FOR A FINANCIAL CHECK-UP, SO MAKE SURE TO GET IN TOUCH WITH ME TO SEE IF STILL LOW HOME LOAN RATES COULD BENEFIT YOU OR SOMEONE YOU KNOW. AND SPEAKING OF SMART FINANCIAL DECISIONS, CHECK OUT THIS WEEK'S MORTGAGE MARKET VIEW FOR GREAT TIPS ON SAVING MONEY DURING THE COMING YEAR.

Forecast for the Week

The first major economic report of the New Year will come on Friday, with the Labor Department's official Jobs Report for December. Last month's Jobs Report showed that only 11,000 jobs were lost in November, despite expectations of 125,000 jobs lost. This marked the least number of jobs lost in nearly two years, since December 2007. In addition, the Unemployment Rate improved to 10.0%, when expectations were for it to remain at the 10.2% level.

Remember, though, that we need to create an additional 125,000 jobs each month just to keep up with population growth...so there is still quite a ways to go before we're out of the woods on the employment front. And while last week's Initial Jobless Claims number showed that new Unemployment Claims were reported at the lowest weekly reading since July of 2008, the holidays and large snowfall in many parts of the country may have prevented people from getting out to the unemployment office to file their claims...so this may well have skewed the reading. The bottom line is that the labor market is a key component to our economy's recovery, so both Thursday's Initial Jobless Claims number and Friday's Jobs Report will be important to watch.

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. Bond prices have been on a worsening trend of late, meaning home loan rates have moved higher. As the New Year begins, remember you can count on me to be watching closely as always - and I look forward to hearing from you or any of your friends, family members, neighbors or coworkers with any questions you might have.