Elizabeth Rose - Certified Mortgage Planning Spec - DFW, TX

Last week, the mortgage industry received a nice boost just in time for Thanksgiving! The Fed is going to buy Mortgage Bonds. This brilliant move by the Fed is designed to help increase the availability of credit, while lowering fixed mortgage rates. On the day of the announcement, Mortgage Bonds rallied and home loan rates improved over .25% in rate or better, depending upon many factors. This year there has been 5 bond rallys which provided a small window for refinancing. This window only lasted a few days each time. Don't miss out!

A word of caution - I'm seeing many ads stating "30 year Mortgage at 5 year lows!" This is not true, so make sure you are working with a professional. Rates are great, but not at 5 years lows.

This afternoon, Federal Reserve Chairman Ben Bernanke is speaking in Dallas on the economic outlook. Rumor has it they are looking to get the Fed Funds Rate down to 0%. Real Interest is defined as the Fed Funds Rate minus Core Inflation. If the Fed takes the FFR down to 0%, this would mean that Real Interest Rate would be negative. Don't expect your bank to pass that nice bonus along to you in your auto loans, credit cards and home equity loans.

Keep in mind, when the Fed lowers the Fed Funds Rate, this is NOT good news for Bonds. Bonds tend to worsen on the news thus mortgage rates rise.

This morning, Bonds continue to remain in positive territory while Stocks are getting roughed up. Gloomy economic reports from around the world have fueled global recession concerns. And again today we see a disconnect between Mortgage Backed Securities (the instrument that affects mortgage rates) and the 10 year Treasury. It's important your mortgage professional is watching the correct instrument.

If shopping around for a mortgage, don't take too much time. Overhead resistance is likely to keep a cap on rates improving while support levels below allow plenty of room for bonds to deteriorate.

This Holiday shortened week started off quiet for the Bond market as MBS remained flat during the first trading hour. Thirteen (13) economic reports are just in front of the Thanksgiving holiday plus a Treasury auction later today. Fewer traders will be working this week and with big reports coming, wild price swings are likely and mortgage rates will feel the impact.

The big news of the morning is Citigroup, at one time our nation's largest Bank. The US Government has agreed to step in and do two things. They've agreed to make an investment of $20 billion as well as guarantee as much as $306 billion of Citigroup's troubled assets. CitiGroup's stocks soared 50% on the news and is helping the stock market this morning.

Speaking of "impact"...US Existing Home sales was released just a short while ago and not a big surprise there. Sales fall 3.1% from the previous month and the median home price reflecting the lowest price since 2004. The impact? Bonds fall almost 20 basis points on the news.

While the Bond market has just turned negative, the Stock market is breaking a move to the upside and picking up momentum. Last week, mortgage rates changed every 3 hours and 38 minutes on average. This week doesn't appear to have any less volatility on the horizon.

If you are in the market for a new home or a new mortgage on your home and shopping around for your mortgage, shop and compare quickly.

A short lesson in Treasuries, Mortgage Bonds, and Home Loan Interest Rates -

Yesterday we saw an huge disconnect between the U.S. Treasury 10 year note and the Mortgage Backed Securities (MBS). The media continues to get it wrong...and even some mortgage professionals are watching the wrong instrument.

While most people were watching the stock market plunge over 400 points yesterday (and by the way...it was close to a 10% loss), the Treasury market was on fire. The 10 year note was up 294 basis points while FNMA 30 year MBS were up just 12 basis points. What does this mean? Well if watching the 10-year note and in the process of financing a home, one would think that home loan rates were improving by close to .75%...and that would be a sad mistake.

So what is the difference between Treasury Bonds and Mortgage Bonds? Treasury instruments are backed by the full faith and credit of the U.S. Mortgage Bonds are backed by mortgages. However recently in an effort to stimulate the economy and restore confidence to the markets, the Treasury stepped in and took over Fannie and Freddie guaranteeing their paper, much like they guarantee Treasuries. MBS offer a higher return than a Treasury and now offer the same safety...if it were me, I'd put my money in MBS rather than a Treasury. The markets haven't figured that out yet.

Today, those same Treasuries that took off like a rocket are now falling faster than they rose. This morning they are down 146 basis points in the short time the market has been open. Again, watching this instrument as a guide to home loan rates would be a mistake.

MBS have been having a tough battle with the 200 day Moving Average and this morning have broken thru to the downside and quickly recovered with a strong bounce. However, we have a Falling Resistance Trend line that likely will keep a lid on any noticable improvements. Today could be a rough ride for Bonds as the stock market attempts to recover. Remember...the investment dollar typically will flow from one market to the other (stocks & bonds).

So where are home loan rates headed? While we are seeing intra-day swings and day after day volatility, the trend is moving mostly sideways meaning rates have remained somewhat unchanged lately. We are headed for a break out - technical analysis shows us that bonds are in for a squeeze and will break out of this current sideways pattern. Inflation has moderated and with the slowing economy and continuing Job deterioration...these fundamentals should help Bonds improve, thus home loan rates improve. But we may have some ugly days before any improvement.

The U.S. Job market is deteriorating at a quick pace losing 240,000 jobs in October. And if that wasn't enough bad news... September and August were revised sharply downward by 179,000 jobs each month. The losses were deep and across all industries with the services industry being the hardest hit. This is the 9^th month of declines.

Our unemployment rate hit a 14 year high of 6.5%, jumping from a reading of 6.1% last month. So far in 2008, 1.18 million jobs have been lost.

The Dow has been all over the place already this morning. Down over 440, up 78. Stocks continue a rough ride after their worst two back to back days since 1987.

With this terrible Jobs Report, typically the Fed would step in with a rate cut to stimulate the economy. However, the Fed really has no room to cut with the Fed Funds Rate already at a low 1%. This could add to the pressure on stocks and boost bonds.

The Bond market is trading in a tight range between support and resistance. Unless we break outside this range, don't look for much change in home loan rates. Interesting to note is the current price of the 10 year Treasury note, which is down on the day by 78 basis points...while MBS is down 22 on the day, but flat since 10 a.m. ET. This highlights why it is so important to be watching the correct instrument.

What does all this mean if you are shopping for a home and a mortgage? There are a lot of great deals out there and with rates remaining low and attractive this could be a perfect time to buy. If you are waiting for the bottom, keep in mind that we don't see the bottom until it is behind us.

As I wrote on Tuesday, the market may be volatile in the days following the election. It sure has, in a good way. After a huge two day rally and 160 basis point improvement over the past two days, this morning Mortgage Bonds began to slide, although they have improved from their worst levels of the day. Currently, all the markets are down...Mortgage Bonds (MBS) are down 19 basis points, Dow down 192, NASDQ down 40 and S&P500 down 22.

A few news worthy events this morning...Bank of England announced a 1.5% interest rate cut, followed by the European Central Bank with a cut of .50%.

Yesterday the weekly ADP Jobs report came in slightly worse than expected, with the highest job loss in 6 years. Today, the initial Jobless claims report was also slightly worse than expected and the continuing claims were the worst in 25 years. Tomorrow we will get a read on employment along with the official Jobs Report. The effects of a slowing economy has manifested in the auto industry, financial services, housing, retailers and other service sectors.

Keep in mind, the stronger the Job market, the greater the spending power, the healthier the economy. This is inflationary and inflation is the arch enemy of bonds. Conversly the weaker the Job market, the better for the bond market.

I am expecting continued volatility in the bond market. While it may seem contrarian, I am floating into tomorrow's Jobs report. While we expect a bad Jobs report, the markets are already prepared for it...and it may not be quite as bad as expected. Of course, this won't help Bonds. However, downward revisions to prior months reports plus an increase in Unemployment will offset this and possibly improve the market.