HAIL TO THE CHIEF…President Bush was sworn in for his second term, and his inaugural comments focused on freedom, saying that freedom is the best solution to fighting terror around the globe. He stated “the best hope for peace in our world…is the expansion of freedom in all the world”.

Now here’s a slippery situation…the price of oil hit a seven week high at nearly 50 dollars a barrel. This pressured stocks lower as they limped through a week of corporate earnings. Overall, earnings reports were mixed, as Yahoo!, IBM, and GE were among those beating expectations, while eBay and Qualcomm missed estimates and were taken “out to the woodshed” to have their prices sawed down.

The shaky stock market – along with reports of low inflation and slower manufacturing – helped Bonds this week. Remembering that improving Bond prices translate into lower rates and vice versa, home loan rates were stable to slighly improved on the week.

THE ANSWER IS $90,000. THE QUESTION? WHAT WILL RANDY JOHNSON EARN PER STRIKEOUT IN THE COMING SEASON?…OR…WHAT IS THE COST OF A HIGH-END KITCHEN RENOVATION? OUCH. ALTHOUGH YOU MAY DECIDE YOU DON’T NEED SUCH A “BIG UNIT”, YOU WANT TO KNOW EVERY DIME WILL COUNT. BE SURE TO READ THIS WEEK’S MORTGAGE MARKET VIEW FOR SOME SURPRISING TIPS ON KEEPING COSTS DOWN.

So with Bonds at nosebleed levels and home loan rates remaining low…where do we go from here? Take a look at the chart below. The green candles that are “stair stepping” higher on the far right show the Bond’s upward movement over the past week. In fact, the last two times this closing level was reached were on December 8th and October 27th, 2004. In both instances, Bond prices were unable to hold and were pushed back lower, causing home loan rates to rise. Also on a technical basis, Mortgage Bonds are showing that they are currently in an “overbought” state, which suggests a possible price peak may be nearby. If we see a correction lower in Bonds, home loan rates would increase slightly.

However, there may be a few reasons why Bonds could continue to be propped up this week near peak levels, and allow home loan rates to hold their ground. When there is uncertainty or fear in the air, money tends to flow out of the stock market and into the bond market, helping home loan rates to improve. It is called a “flight to safety” or a “flight to quality”, as investors feel that their money is safer in bonds rather than stocks. Next Sunday, January 30th brings the long-awaited Iraqi elections. There is a fear factor over possible oil supply disruptions out of Iraq, as insurgents are expected to step up attacks before the election. When added to the usual uncertainties surrounding the OPEC meeting, also on January 30th, as well as the following week’s Federal Reserve and G7 monetary meetings, this fear adds up to some additional support for Bonds and home loan rates.

Bottom line - when Bonds are at such a lofty level, things can change very quickly. Although there are several reasons why home loan rates may find support to remain at present levels, a very cautious eye should be kept open for a reversal.

Need a lift where it's sagging or maybe just a little touch-up? Make it bigger, brighter, better!

Hold on, it's not “Extreme Makeover” plastic surgery. We’re talking home remodeling. Renovation and remodeling have become a huge business, accounting for 40% of all construction costs, or $233 Billion, during 2003 alone.

While many home renovations can be done for under $10,000, the trend is definitely moving higher. Just take a look at the links below - including a renovation cost calculator - and it's easy to see that with a few nips and tucks around the home, spending over $100,000 becomes reality very quickly.

And financing the renovation seems easy, especially with a Home Equity Line of Credit (HELOC), where the interest is typically tax deductible. But remember that HELOC rates are almost always tied to the Prime Rate. Prime has increased 1.25% in the past year - and the Fed has all but guaranteed several more increases continuing during 2005. As the Prime Rate continues to move higher, so will the payment on most Home Equity Loans. For example, on a $90,000 HELOC balance, the Fed hikes could eventually translate to a payment increase of over $250 a month...$3,000 a year!

So the best way to finance the improvement may very well be with a new first mortgage that takes cash-out…even if the rate is slightly higher than the one on the existing loan. This often works best because rates on first home mortgages have actually decreased over the same time HELOC rates have moved higher. So in the case of a $90,000 makeover, you could wind up saving over $10,000 by choosing the right financing.

Thinking of a remodel, large or small? Contact me today to review options that could not only lock in your financing costs on re-doing that kitchen...but just might save enough to get your bathroom done too.

Next week is loaded with data for traders to chew on, starting with Existing Home Sales on Tuesday morning. The most potentially market moving report of the week is a Greenspan favorite, Friday’s Employment Cost Index, a comprehensive measure of labor costs.

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 January 24 – January 28