Despite weaker than expected employment data and a significant increase in Fed purchases of mortgage backed securities (MBS), mortgage rates rose a little during the week. Concerns about the potential increase in the supply of debt trumped these other factors. The House passed one fiscal stimulus plan, and the Senate is expected to vote on its version any day now. The combined government spending for this new package, along with the TARP program and a proposed bank cleanup plan, will total trillions of dollars. An enormous amount of new debt will be issued to pay for all the government programs, which may push interest rates higher for all types of bonds.
It's a widely held view that the economy is very weak right now, and Friday's downbeat Employment report came with little surprise. The US economy lost about 600K jobs in January, following a decline of 3 million jobs in 2008. The Unemployment Rate jumped to 7.6% from 7.2%. This weak report provided lawmakers support for the urgent passage of a large fiscal stimulus package.
In the housing sector, December Pending Home Sales rose 6% from November. Pending Home Sales are a leading indicator for the housing market, meaning that the Home Sales reports may show gains over the next couple of months. The housing market may receive another boost as well. As part of the stimulus plan, the Senate is considering a tax credit of up to $15,000 for the purchase of a home this year. More details will be released as the proposal progresses.
Also Notable:
The Unemployment Rate jumped to the highest level since 1992
The European Central Bank (ECB) held rates steady, as expected
Oil prices fell below $40 per barrel, down from $145 per barrel in July
The Fed purchased $22 billion in agency MBS during the weekly period ending 2/5
Average 30 yr fixed rate:
Last week:
+0.31%
This week:
+0.06%
Stocks (weekly):
Dow:
8,200
+150
NASDAQ:
1,575
+100
Week Ahead
News regarding the Senate's fiscal stimulus proposal and the Treasury's financial institution cleanup plan may be the biggest drivers of mortgage rates next week. The most significant economic data will be Thursday's Retail Sales report. Retail Sales account for about 70% of economic activity. The Trade Balance and Consumer Sentiment also will be released next week. Mortgage markets will close early on Friday in observance of Presidents Day.
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