OVERVIEW OF LAST WEEK

On Tuesday, President Barack Obama signed into law a $787 billion economic stimulus plan designed to spur consumer spending and create millions of jobs. The American Recovery and Reinvestment Act contains numerous provisions: roughly $300 billion in tax breaks for individuals and businesses, more than $250 billion in aid to distressed states, and almost $200 billion to upgrade the nation’s infrastructure. The package also includes an $8,000 tax credit for first-time homebuyers, which does not have to be repaid unless you sell your home within three years.
On Wednesday, Obama unveiled the $75 billion Homeowner Stability Initiative. The multi-step plan would help struggling homeowners by providing incentives to lenders, servicers, mortgage holders and borrowers to help modify mortgage loans. The goal is to prevent as many as nine million Americans from losing their homes to foreclosure.

As the week unfolds watch for the stock market to attempt a rally while bonds bounce up and down without a huge change in mortgage
rates. The fed is going to put maximum effort into keeping long term rates low for homeowners and for corporations. Expect a final bond rally to begin within a few weeks-this will be the best opportunity to lock in rates under 5%.

BOND MARKET RALLIES AS STOCKS SLIDE

This week saw the passage of the stimulus bill and information was released on how the mortgage relief plan will be implemented. Apparently, the stock market was not pleased with these plans as stocks sold off all week long. As money left the stock market, it helped the bond market rally and mortgage rates improved. Mortgage rates are staying rangebound between 4.75-5.25% as predicted. In the longterm, there is concern with supply of bonds which will ultimately push rates higher. Near term, lows in the stock market( near levels not seen since 1997) are keeping rates down. Many of my clients locked in excellent rates under 5% this week.
I continue to advise clients that rates are at historic low levels: fed funds rates are already at 0-0.5% so the fed has little means to push rates lower. Waiting for much lower rates will result in losing a great rate for the longterm.
I will post over the weekend with more information about the mortgage relief plan although full details will not be known until early March.

WEEKEND RESEARCH

I spent hours researching this weekend and find that my outlook remains the same. The stimulus bill has passed although most of our elected officials admit that no one read the entire bill which was over 1000 pages long!  At this juncture, we will need to see what the stock and bond market reaction is this week once the bill is signed into law. My review of technical charts and third party research suggests that bonds will bounce around in a vary narrow range which means mortgage rates should remain in the 4.875-5.25 area in the next few weeks.

I still see potential for another bond rally in March which could push mortgage rates slightly lower.   The other unknown is what the government will offer in terms of a plan for relief to stressed borrowers- we expect more details in the next few weeks.  Elected officials opted NOT to include a plan to offer low rates for refinancing in this stimulus bill.

Longer term, bank bailouts and stimulus bills = huge debts, government borrowing=

INFLATION + HIGHER RATES.   Borrowers who can lock in these great rates for purchases or refinances should do so very soon.   After the next rally in bonds, potential for much higher rates could surprise everyone waiting to lock in at 4%.