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 Super storm 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?

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.

Andrew Alfonso

www.doubleamortgage.com