MMG Weekly: Fed Buying Program a Hard Habit for Markets to Break

Edward F. W. Deanes

Home Mortgage Consultant

Wells Fargo Home Mortgage

Phone: (757) 418-2064

Fax:: (866) 935-0661

www.deanesgroup.com

Last Week in Review

"YOU DON'T KNOW WHAT YOU GOT UNTIL IT'S GONE - AND I FOUND OUT A LITTLE TOO LATE..." The words from Chicago's hit song from the 80's sums up the market's sentiment on the ending of the Federal Reserve's Mortgage Backed Security buying program. And the resulting volatility for home loan rates that has already begun.

The Fed did what they set out to do - purchasing $1.25 Trillion in Mortgage Backed Securities, and succeeding in their plan to lower home loan rates and help stabilize the housing sector. And even though they stretched out the length of the program slightly - in order to soften the impact of the end of the program - the training wheels are now off, the safety net is gone, and home loan rates have already moved higher. In fact - as the Fed will now gradually become a seller of their massive holdings of Mortgage Backed Securities - rates are very likely to continue to move higher still.

Even after home loan rates took a jump higher last week, they still remain at reasonably low levels - which makes right now a crucial time to take advantage of the opportunities that exist, including the Homebuyers Tax Credit which is down to its last month. To take advantage of the generous credit, purchase contracts must be signed by the end of April. If you or someone you know has questions about this credit - please don't wait to get in touch with me.

Adding to last week's volatility, the official Jobs Report was released last Friday - and according to the report, 162,000 jobs were created in March, making it the biggest one-month increase in three years. Additionally, there were upward revisions to January and February, which brought the last two months' net job losses to near zero.

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Chart: Nonfarm Payrolls (By Month)

While it was good to see some positive numbers, we're not exactly out of the woods just yet, as there were some concerning aspects of this Jobs Report. For example, Average Hourly Earnings actually fell 0.1% in March. This could be viewed as a negative sign, indicating that there's no pressure on companies to pay workers more to retain them. It also shows continued temporary hiring at a lower pay scale.

The official Unemployment Rate remained steady at 9.7%, but when factoring in the "underemployed", including people who accepted part-time work because full-time work is simply not available, the rate of unemployment overall rose from 16.8% to 16.9%. This is a big number that continues to weigh on the labor market.

Also in the news last week, the US Savings rate moved down to its lowest Level since October 2008. Check out the mortgage market guide view article below for some simple ways to boost your savings.

Forecast for the Week

This week's economic calendar may seem slow after the wave of economic news last week. But there are still some big items on tap, starting off right away Monday morning when the Pending Home Sales report gives us a look at the health of the housing industry.

Tuesday brings us the Meeting Minutes from the latest Fed Meeting. Although we already know what the Fed's policy announcement was, the markets will be looking at the discussion contained in the Meeting Minutes as an indication of what Fed members are thinking and what they may do in the future.

On Thursday we'll get another look at Initial Jobless Claims. Last week, Initial Jobless Claims were reported basically in line with expectations and down from the previous week's number, and Continuing Jobless Claims declined as well. With those numbers and last week's official Jobs Report in mind, the market will be watching to see if the labor market can continue to make positive strides.

Finally, in addition to those reports, the Treasury Department will auction off $82 Billion in Treasuries. And since most of those will be longer maturities that compete with Mortgage Backed Securities, the auctions could add volatility to the markets depending on how they are received.

Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result. As you can see in the chart below, Mortgage Bond prices plunged last week and rates increased .25%.

Chart: Fannie Mae 4.5% Mortgage Bond (Friday Apr 02, 2010)

Japanese Candlestick Chart

The Mortgage Market View...

Boost Your Savings...Without Hardly Trying

These days most people would welcome the idea of having more money in their savings account. Here are a few ideas that can help make that possible. And the best part is...you'll hardly feel it!

Bring Your Lunch to Work - Most people spend $6 (or more) when they buy their lunch, yet spend $2 when they pack it themselves. That's a potential savings of $20 a week or $1,040 dollars a year.

Durable over Disposable - Using products like Handi-Wipes (semi-disposable rags) as opposed to paper towels, and a rechargeable razor rather than the disposable kind, can save about $200 per year.

Hold an Annual Yard Sale - You should have no problem making at least a hundred bucks. Besides, you'll get rid of all that household clutter in the process. Whatever you don't sell can be donated to charity and used as a tax write-off.

Ask for Discounts - From buying airline tickets to paying a medical bill, always ask if there's a discount to be had. The worst that can happen is you'll be told no.

Get a Library Card - As opposed to buying a book for $20 or renting a DVD for $4, get it for free. If you average 3 movie rentals a month, you'll save yourself over $140 a year.

Watch Those Utilities - Changing over to energy-saving light bulbs and low-flow showerheads is a great start. Also, most utility companies offer a home audit you can complete online. If not, go to http://hes.lbl.gov for a virtual inspection of your home. You may be surprised to learn how much energy (and money) you could be saving.

The good news is that suggestions like these are merely a start. Taking the time to discover inefficient habits in your household and making a few minor adjustments can lead to more savings opportunities than you may realize! And that's great news, both today and in every kind of economy!

This Week's Economic Calendar

Remember, as a general rule, weaker than expected economic data is good for rates, while positive data causes rates to rise.

Economic Calendar for the Week of April 05 - April 09

Date	ET	Economic Report	For	Estimate	Actual	Prior	Impact
Mon. April 05	10:00	ISM Services Index	Mar	53.6		50.0	Moderate
Mon. April 05	10:00	Pending Home Sales	Feb	-0.1%		-7.6%	Moderate
Tue. April 06	02:00	FOMC Minutes					HIGH
Wed. April 07	10:30	Crude Inventories	4/03	NA		2.93M	Moderate
Thu. April 08	08:30	Jobless Claims (Initial)	4/03	433K		439K	Moderate

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As your trusted advisor, I am sending you the MMG WEEKLY because I am committed to keeping you updated on the economic events that impact interest rates and how they may affect you.

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