Events This Week:

GDP Down

Jobless Claims Rose

Home Sales Lower

Manufacturing Mixed

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Events Next Week:

Fri 1/2
ISM Manuf.

Mon 1/5
Construction

Tues 1/6
Pending Sales
FOMC Minutes

Fri 1/9
Employment

Improved Conditions to Begin 2009

Conforming mortgage rates ended 2008 at the lowest levels in decades. One reason is that inflation is not a concern right now due to the current economic weakness and the decline in energy prices. In addition, the Fed has begun to purchase mortgage-backed securities (MBS), increasing the demand. Mortgage rates are generally determined by the price of MBS. On November 25, the Fed announced a plan to purchase as much as $500 billion in MBS, and mortgage rates have dropped significantly since the announcement. Low inflation and Fed purchases of MBS are expected to continue in coming months.

Along with low mortgage rates, homes have reached their best level of affordability in many years, according to the National Association of Home Builders (NAHB). The NAHB index compares the cost of paying for a home, based on average home prices and mortgage rates, to the median household income. Increased affordability allows more people to participate in the housing market, which should boost demand for new and existing homes.

The consensus outlook is that the economy will begin to improve during 2009. In addition, both the Mortgage Bankers Association (MBA) and the National Association of Realtors (NAR) expect the housing market to improve next year. The NAR predicts that both the number of existing home sales and home prices will increase in 2009. The combination of a rebounding economy, low mortgage rates, and affordable home prices provides good reason to expect an improved housing market in 2009.

Also Notable:

* 3-month Libor rates fell below 1.5% from a recent peak near 5.0%
* Oil prices fell below $40 per barrel, down from $145 per barrel in July
* December Consumer Confidence dropped to a record low
* Fannie Mae and Freddie Mac together own or guarantee nearly half of US mortgages

Daily Rates from Hawaii’s Top Lender’s

Average 30 yr fixed rate:

Last week:

-0.27%

This week:

+0.14%

Stocks (Year-End):

Dow:

8,777.67

-3,487.15

NASDAQ:

1,577.03

-1,075.25

Week Ahead

The important Employment report will come out on January 9th. As usual, this data on the number of jobs, the Unemployment Rate, and wage inflation will be the most highly anticipated economic data of the month, since the condition of the labor market is perhaps the single biggest factor in the performance of the economy. Early estimates are for a loss of 500K jobs in December.

Before that, the ISM Manufacturing index will be released on Friday of this week. The Pending Home Sales index, a leading indicator for the housing market, will come out on Tuesday of next week. The FOMC minutes from the December 16 Fed meeting will also be released that day. This detailed record of the discussion between Fed officials often provides additional insight into the reasoning behind the Fed statement. Factory Orders and Construction Spending are scheduled for next week as well. Mortgage markets will close early on Wednesday and Friday this week, and will be closed on Thursday.