Mortgage markets lost ground last week on growing optimism for the economy, a poor run for the dollar versus the euro, plus the lingering concerns that inflation will grip the U.S. long-term.

Conforming mortgage rates in Arizona rose for the fourth week in a row, stymying rate shoppers and raising the effective cost of homeownership for new buyers in need of a mortgage.

After a spectacular run that drew 30-year fixed rates to near 4.00, mortgage rates have returned to their highest levels since late-June.

Last week was heavy on news. Bond traders were hit with the Beige Book; with the ADP Challenger Report; with the ISM Manufacturing Report; and, with Pending Home Sales data for October. Each release moved markets.

Only Friday’s Non-Farm Payrolls report kept mortgage rates from really soaring.

According to the government, 39,000 net new jobs were created in November, and September’s and October’s data was revised higher by a combined 38,000.  The sum of these figures fell well short of Wall Street expectations — investors has expected 146,000 net new jobs in November.

As a result, mortgage rates made their largest, intra-day improvement of the year Friday morning, although they slid higher through the afternoon. Rates fell 1/8 percent Friday as compared to Thursday and rate shoppers may see that momentum carry forward into this week.

Fed Chairman Ben Bernanke gave a televised interview Sunday evening in which he said, among other things:

1. “The fear of inflation is way overstated.”
2. Additional bond market support is “certainly possible”.

Both comments should help to allay inflation concerns, and may lead mortgage rates lower this week. If you’re floating a mortgage rate, keep a watchful eye on markets and be especially wary if mortgage rates start to rise again. November was rough on mortgage bonds.

If December follows suit, expect mortgage rates to approach 6 percent.

Call Todd Abelson and Tyler Ford at Sunstreet Mortgage (520)-331-LEND for all your  mortgage needs!

Bond Chart courtesy of "Mortgage Market Guide"

In the weeks prior to the announement of “QE2″ (early October) talk of DEFLATION was all the rage. In such an event, bonds would be “king” and interest rates would plummet. Notice how the Mortgage Backed Security market was doing in the first half of October - high on the price chart, yielding low rates.

Then the Fed formally announced “QE2″ but stressed how they would bring inflation back to the market. With that the stock market rebounded and bonds began a sell-off therby forcing prices down, yielding higher rates.

What you’re seeing in the above bond chart is as follows:

1. 30-year fixed rates have increase by .375% in rate from their lows of early October. NOTE THAT AS THE PRICE OF A BOND INCREASES, THE INTEREST RATE DECREASES. RED MEANS DECREASING PRICE AND INCREASING RATES!

2. In the past 4 trading sessions, bond prices have broken BELOW the 25-day (green), 50-day (black) and 100-day (orange) moving average “support levels”. This is B-A-D; it’s kind of like falling through the floor when it “gives way”.

3. The next major level of support is the 200-day moving average (purple) WAY below the current trading range. There is only one minor support level standing in the way of a HUGE drop in bond prices, which would yield another .25% or more INCREASE in rates. Let’s hope this one holds!

Mind you, rates in the mid-4′s (or even 5.0%) are nothing to worry about as anyone over 45 will tell you. However, most people in the present market think “the end of the world is near!” at 5%. Trust me, its not.

HOWEVER – we may never see these rates again so here’s  my advice for what its worth:

A. If you’re currently shopping rates, STOP AND LOCK

B. If you’re thinking about shopping but holding off for “better rates” STOP AND LOCK

C. If you’re already in process and are floating your rate STOP AND LOCK

Remember, unless your interest rate is at 0% there will always be something lower you MIGHT be able to get. If you do lock and rates decrease again, well then refinance again! Unless the Feds screw things up, this is (in my opinion) the time to grab a great rate. Who knows? You may be all the talk of the next cocktail party for seeing the market “right”.

Call Todd Abelson & Tyler Ford at Sunstreet Mortgage at (520) 331-LEND for all your mortgage needs!

Leg 1: Election day, Tuesday 11/2/2010, sees Democrats take shellacking in the polls. Stock and Bond Markets yawn as the results are already “baked in”.

Leg 2: Fed Open Market Committee announcment Wednesday 11/3/2010. Another round of Quantitative Easing (QE2) up to $600B. Stock and Bond Markets yawn and the results are already “baked in”.

Rest day, Thursday 11/4/2010 markets start to digest the data and we have wildly volatile day in Bond Markets.

Leg 3: Employment Report, Friday 11/5/2010 - KAPOW!!!! While Unemployment rate stands at 9.6%, job creation was almost 3 times better than expected at $151k. Furthermore, upward revisions to September & October numbers make the news even better. Stocks ROCKET and Bonds fizzle as rates bump up.

Hang on ’cause the wild ride ain’t over!!!

The question going forward for the Bond Markets (and interest rates) – what will the $600B in QE2 money be used for, if ANYTHING? If the Feds buy only Treasuries, Mortgage rates may not see any dips. However, if the Feds buy Mortgage Backed Securities we will have a short-lived dip.

Thinking of locking? You either need to lock now or you better have a strong stomach!

I’m looking forward to the markets closing today – I need a rest!!!

According to the Commerce Department, the number of single-family Housing Starts increased to 452,000 units in September, a 19,000 improvement over August.

A “housing start” is a new home on which construction has started.

Housing Starts data is surveyed and broken-down by housing type:

1. Single-Family Housing Starts
2. Multi-Unit Housing Starts (2-4 Units)
3. Apartment Building Housing Starts (5 or more units)

The government logs each type separately, but also lumps them into a single, comprehensive figure within its reports. For this reason, headlines surrounding the story seem contradictory.

For example:

• Marketwatch : Housing starts rise for 3rd straight month, up 0.3%
• CNN : Housing starts jump to 5-month high

It’s single-family homes that most Americans purchase, though, and that’s why single-family starts are the numbers worth watching. As 75% of the market, it’s more relevant than the joint numbers most commonly reported by the press.

In September, single-family starts did move to a 5-month high but buyers and sellers in Tucson should keep the figures in perspective. Just because starts are rising doesn’t mean the housing sector has turned around for good.

The first reason why is because, in September, starts were 75 percent less as compared to 5 years ago at the peak of housing. And if you feel that’s an unfair comparison, even as compared to the last 12 months, September’s data was tens of thousands below average.

Second, September’s Margin of Error happened to exceed its actual measurement. This means that the 4 percent in starts may actually turn out to be a loss of 4 percent (or more!) once the data is collected in full.

If there’s a reason to think the New Homes market is coming back, though, it’s that home builder confidence is also at a 5-month high. Foot traffic is rising and builders are optimistic about the next six months.  This could mean higher sales prices and less chance for negotiation.

Buyers in search of new homes may find it tougher to make a deal the closer we get to 2011.

The recent rise in mortgage rates was slowed this week after the government released its Retail Sales report for August.

Prior to Tuesday, mortgage rates had been spiking across Arizona on the resurgent hope for U.S. economic recovery. The sentiment shift was rooted in reports including the Pending Home Sales Index and Initial Jobless Claims, both of which showed surprising strength last week.

August’s Retail Sales, though, after removing motor vehicles, auto parts and gasoline sales, failed to maintain the momentum. Its figures were actually in-line with expectations — it’s just that expectations weren’t all that high.

Wall Street now wonders whether the weak Back-to-School shopping season will trend forward into the holidays.

The doubt spells good news for mortgage rates and home affordability.

Because Retail Sales is tied to consumer spending and consumer spending accounts for two-thirds of the economy, a weak reading tends to drag down stock markets and pump up bonds, and when bonds are in demand, mortgage rates fall.

This is exactly what happened Tuesday. The soft Retail Sales data eased stock markets down, and generated new demand for mortgage bonds. This demand caused bond prices to rise, which, in turn, caused mortgage rates to fall.

Mortgage rates did not cut new lows this week, but they’re very, very close.

With mortgage rates at historical lows, it’s an excellent time to look at a refinance, or gauge what financing a new home would cost. Low rates like this can’t last forever.

Tucson Mortgage Team: 520-331-5363 (LEND)