Trading activity in the mortgage market this morning is once again skimpy as many market participants are away from their office for this holiday-shortened week. 

The last week of 2008 will end with the demand for mortgage applications at its highest level in more than five year as loan rates set record lows.  The Mortgage Bankers of America announced this morning that purchase money applications were up 1.4% during the week of Christmas while refinancing applications slipped a mere 0.4% lower.  That makes sense, considering fixed 30-year home loans averaged 5.03% last week, marginally lower than 5.04% from the week earlier levels and well below the July peak of 6.59%. 30-year fixed rate mortgages rates have now fallen below the June 2003 lows which most analysts (including me) thought would represent a generational low.

Looking into the first-half of 2009 mortgage interest rates will likely remain attractive.  The Federal Reserve reminded market participants yesterday that they will begin to "make good" on their November 25, 2008 announcement regarding their intent to direct-purchase $500 billion worth of agency eligible mortgage-backed securities. A Federal Reserve spokesman said the central bank intends to spend all of the allotted funds by the end of the first-half of 2009.  By my calculations the Fed will need to buy at a little more $83 billion per month to meet their stated objective.  A buying appetite of that size may not necessarily push mortgage interest rates dramatically lower from current levels - but it darn sure will serve to keep rates from moving sharply higher through mid-year. 

I am encouraged by what I see coming our way in '09.  Best wishes for a healthy, happy, productive and prosperous New Year everybody.

Today's conforming 30 year fixed is at 5.25%.