ANOTHER SUPERBOWL WEEKEND FLASH!! But not by Janet Jackson this time, it was actually Mortgage Bonds, streaking into the weekend and showing off their top, boasting the highest close since April 1st, 2004. But after further review…what happened? Everything had been pointing towards a hot Jobs number coming last Friday, with some estimates as high as 215,000 new jobs created…but when the figure was uncovered, it disappointed to the downside with only 146,000 new jobs. The one hot spot in the report was the Unemployment Rate coming in at 5.2%, versus an expected rate of 5.4%…yet the surprising miss on the Jobs number boosted Bond prices higher and home loan rates improved slightly.

But Chairman Greenspan didn’t reveal anything shocking last week – thank heavens – and the Fed announced their expected decision to raise short-term rates by another .25 percent, taking the Fed Funds Rate from 2.25 to 2.50 percent. And keep in mind that Chairman Greenspan is unlikely to give many surprises during 2005, as this year marks his last as Fed Chairman. Look for the Fed to continue on its course to gradually raise the Fed Funds Rate throughout the year.

WHAT WILL $2,400,000.00 GET YOU? A THIRTY-SECOND SUPERBOWL AD…OR IN SOME COMMUNITIES, A TWO BEDROOM ONE BATH FIXER UPPER. REAL ESTATE PRICES HAVE INCREASED DRAMATICALLY, BUT IS A HOUSING “BUBBLE” REALLY ON THE HORIZON? SNEAK A PEEK AT THIS WEEK’S MORTGAGE MARKET VIEW FOR SOME STRAIGHT TALK ON THIS HOT TOPIC.

So looking ahead – is it reasonable that Bonds can hold their present lofty levels, leaving home loan rates down so low? While Bonds did enjoy a somewhat muted rally on the missed Jobs number, they are hovering right around a very tough ceiling of technical resistance, as you can see on the chart below. Interestingly enough, Bonds tickled this exact level on October 25th, but then reversed lower and home loan rates moved higher. In fact…Bonds have not traded convincingly above this level in nearly a year – since March of 2004.

With a slow financial calendar on the docket for the week, there will be little economic news to force market action one way or the other. It remains to be seen if Bonds and home loan rates can keep their tentative grasp on present levels.

Bottom line: In the absence of surprising news this week, home loan rates should be stable…but be cautious. Recent trends would indicate that Mortgage Bonds and home loan rates might not hold their current positions for too long.

BUBBLE, BUBBLE, TOIL AND TROUBLE…

Question: I’ve been hearing all this talk lately about a “housing bubble”…in fact it’s all over the news, in the paper, and on the Internet. What’s the straight scoop?

Answer: While it may sell newspapers and boost TV ratings, the “housing bubble hype” is a bit overblown, no pun intended. A housing “bubble” implies that home prices and values are so over inflated that they will soon “pop”, and decline dramatically. Could such a decline really be in store? Let’s look at the facts.

Historically, housing prices and values have always been very closely tied to local job markets. Previous major declines have been tied to large increases in unemployment – California is a good example. The last time California saw a decline in home prices, it was a 13% drop between 1990 and 1995, which coincided with a 35% increase in unemployment during that exact time period.

The last time the nation overall saw a drop in housing prices was during the Great Depression, when unemployment was over 25%! And remember, Friday’s Job’s Report showed unemployment at a tame 5.2%, even lower than expectations.

That being said, while the US economy added 2.2 million jobs during 2004, not all states have participated in the party. Some states and regions are struggling with job losses – especially in the manufacturing sector – so it follows that in those areas, home values may be more vulnerable during the year ahead. And it is also quite likely that across the board, appreciation will taper off and reduce to a much more modest – and normal – rate of 5-7%, down from recently higher levels in many parts of the country.

And if you want to see how your own state has appreciated, check out this link --> Housing Price Index

Now here’s another interesting point.

Some folks are even saying that the “pin” which could cause the bubble to burst would be interest rates, implying that higher interest rates would cause homeowners to stop buying and values to plummet. But let’s be realistic – even if rates were to spike two full percentage points, an unlikely event in any scenario, the impact would be nominal. If this were to occur, the average increase on a home loan payment would be about $32 a week after tax considerations. Now $32 a week is not enough of a deterrent to prevent a home purchase…but back to the jobs issue, if you felt like you were at risk of losing your job, you might hold back and reconsider the wisdom of a buying a home at that time.

And speaking of monthly payments, in 1980 the average home loan payment to gross income ratio was 31%. In 1990 it was 22%, and today the average is 19%! So although there has been a huge rise in home prices, creative programs and rising incomes have kept monthly housing expenses comparatively affordable.

Further, Frank Nothaft – Chief Economist at mortgage giant Freddie Mac – recently said that 2005 home sales were expected to be only a measly 1-2% lower than record-setting 2004…and his past predictions have been quite accurate.

So while it’s always wise to carefully evaluate large decisions like purchasing a home, don’t get too caught up in the “housing bubble hype”. Instead, talk to your trusted mortgage and real estate professional advisors. They’ll help you evaluate the alternatives and choices, and give you the information you need to make a home buying decision you feel good about.

The economic calendar gets a much needed breather after last week’s power-packed schedule. The only economic reports that will generate much market interest at alll will occur on Thursday, when the US Trade Balance and Initial Jobless Claims are released.

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

For the week of February 07 – February 11