Market News Update - Stock Market Rises Along Side Mortgage Rates

The stock market has been steadily rising throughout the month of January, increasing over 750 points.  Investors have been slowly starting to believe in the viability of investing in stocks once again, which has been illustrated by the amount of money that has been coming out of Treasury bonds.

If you have been wondering why mortgage rates have been rising, it is simply that more and more people are feeling better about the future of housing and money is moving out of bonds into the stock market.  The reality of things is that housing is fast becoming the bright spot in the economic recovery.

To make things even better, the future of home building looks very strong.  The reason is that there is a lot of pent up demand for housing.  The challenge is that inventory of existing homes for sale is quite low.  The National Association of Realtors most recent report on existing home sales showed an unexpected decline.  However, the reason is that there is not much in the way of inventory for sale.  The drop has very little to do with buyer demand, as that remains very strong.  If there is not much existing inventory on the market for sale, then builders need to build, and they are certainly starting to do that now.

Applications for mortgage finances dropped 10% in the last week.  The decline is most likely a direct reflection that interest rates have risen approximately ¼%.  Rates are still ridiculously low; however, borrowers have become very sensitive to slight rate movements.

The Case-Shiller Home Value Index reported that home prices for the nation’s 20 major cities increased by .6 percent.  Additionally, home prices are up 5.5% from a year ago, which continues to support the facts that a housing recovery exists.  We are still a long way off from recovering the lost equity from the housing meltdown; however, now that demand is increasing, we are starting to slowly recover some of the value lost.

To no one’s surprise the Fed announced that they will continue to keep rates low and that they will continue their bond purchasing program to artificially keep mortgage rates down.  The one thing to realize is that if housing continues to improve at the current pace, mortgage rates will increase despite the Fed’s efforts.

ADP reported that there was increase in private payrolls of 192,000.  On Friday it was reported that national unemployment is 7.9% and the economy added 157,000 jobs, which was less than anticipated.  The employment picture shows steady improvement, but at a very slow pace.

There does continue to be signs that the economy is not quite as strong as we would like to believe.  We have all heard time and time again that housing takes us into a recession and it takes us out of it.  It appears that housing has started the process of healing the economy and things should keep improving. 

Next week housing reports will dominate the economic calendar of reports.

• Wednesday February 6 - MBA Applications
• Thursday February 7^th - First Time Jobless Claims

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Sincerely,

Cindy Tomlinson
Loan Officer

USLending Company

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