Although this is great news for anyone with a Home Equity Line of Credit because the Prime Rate will stay so low for years to come, it is not good news for those with short-term savings accounts nor does it insure that long-term mortgage rates will stay low.  Other factors such as inflation, unemployment, and consumer confidence will dictate what happens with mortgage rates.  Nevertheless, the stage seems to have been set for mortgage rates to stay low for the foreseeable future, and that’s good news for the real estate community!

Also worth noting, Friday’s Gross Domestic Product (GDP) report showed an increase at a 2.8% annual rate during the fourth quarter of 2011, which was a little below the consensus forecast, but up from 1.8% during the third quarter.  Early estimates for the first quarter of this year are for a slower growth rate.  The long-run average growth rate for the economy is generally considered to be around 3.0%, and the economy usually grows at a faster than average rate following a recession.  Given that the economy is growing below its potential and that inflation remains tame, the Fed’s expectation that monetary policy will remain very stimulative for a long time is understandable.

There was some good economic news to report from last week as December Durable Goods Orders rose a strong 3% from November and Consumer Sentiment rose to the highest level in a year.  Significant progress also seems to have been made in reaching a new debt deal inGreece.  Unfortunately, though, the housing news wasn’t great as December Pending Home Sales declined 4% from November’s 19-month high and December New Home Sales declined 2.2% (as shown in the graph below).  2011 ended up being the worst year on record for New Home Sales. 

Looking forward, the biggest economic report this week will be the ever-so-important Employment data on Friday.  As usual, this data on the number of jobs, the Unemployment Rate, and wage inflation will be the most highly anticipated economic data of the month.  Chicago PMI Manufacturing and Consumer Confidence are also fairly big reports that will be released today as well as ISM Manufacturing, Construction Spending, and ADP Employment on Wednesday.  Productivity, Factory Orders, and ISM Services round out a busy week.

 Early in the month, the December Employment report showed a larger than expected increase of 200K jobs, and the Unemployment Rate continued to move lower.  Last week, Weekly Jobless Claims fell to the lowest level since April 2008.  The labor market is one of the most important factors in the health of the economy, and many investors now view the outlook as brighter than it has been since the financial crisis began.  If this is the case, it will be great news for the economy, and job gains will increase the willingness and the ability of people to purchase homes.

 The Housing sector data released last week was encouraging as well.  January Existing Home Sales increased 5%, while the inventory of unsold homes declined 9%, to the lowest level since March 2005.  December Housing Starts for single-family units increased 4%, and Building Permits for single-family units rose 2%.  Finally, the January NAHB Home Builder confidence index rose for a fourth consecutive month to the highest level since 2007.  Improving economic conditions, high affordability levels, and low mortgage rates are three solid reasons to be optimistic about the housing market.

 The most highly anticipated economic news this week will be Wednesday’s Fed announcement.  Investors will be looking for hints about whether the Fed will provide additional monetary stimulus.  The most significant economic report will be Friday’s GDP data for the fourth quarter.  GDP is the broadest measure of economic activity.  Before that, Pending Home Sales will be released on Wednesday and Durable Orders and New Home Sales on Thursday.  Leading Indicators and Consumer Sentiment round out the schedule.  In addition, there will be Treasury auctions on Tuesday, Wednesday, and Thursday.

In the same announcement, FHA also mentioned they may soon require indemnification for “serious and material” violations of FHA originated loans.  This means that any inaccuracy in a loan file could be interpretted as fraud or misrepresentation and cause the lender to have to repurchase the loan.  A few of these repurchases could put a small lender out of business.  Stated another way, FHA is proposing to make it harder for lenders to make FHA loans.  Just what we don’t need right now!

The most significant economic data due out this week are the monthly inflation reports.  The Producer Price Index (PPI) focuses on the increase in prices of “intermediate” goods used by companies to produce finished products and will come out on Wednesday.  The Consumer Price Index (CPI), the most closely watched monthly inflation report, will come out on Thursday.  CPI looks at the price change for those finished goods which are sold to consumers.  In addition, Industrial Production, an important indicator of economic growth, will come out on Wednesday.  Housing Starts will be released on Thursday, and Existing Home Sales will come out on Friday.  Philly Fed and Empire State round out a very busy week.

On Dec 31st, Congress let 58 tax code benefits expire, including credits for home energy improvements, credits for builders of energy-efficient new houses, and home buyer tax deductions for mortgage insurance.  The mortgage insurance deduction has been a key mortgage financing benefit in place since 2007 which benefitted home buyers with income of $110k per year or less.  Combined with the new fees they are imposing on Conventional loans this Spring, Congress continues to increase the costs of homeownership rather than reduce them!  It should be noted that Congress still has the power to reauthorize all or some of the write-offs retroactively this year, but the current political atmosphere raises doubts about that happening.  Its time to let our elected representatives know how we feel!

Investors hoping for the European Central Bank (ECB) to expand its role in providing aid to euro zone countries have again been disappointed.  The ECB has indicated that it currently has no plans to introduce any major new aid programs.  It appears that ECB officials believe that the appropriate next step in easing the debt issues is for tighter budgetary discipline.  In addition, European Union officials suggested that working out the details of an agreement on fiscal integration between the many EU countries may take months.  Investors responded to the lack of significant progress by selling many European stocks and bonds and purchasing relatively safer assets such as US government guaranteed Treasuries and mortgage-backed securities (MBS).

Last week’s Fed statement also disappointed any investors looking for a shift in policy.  It contained no major changes from the last statement.  According to the Fed, the economy has been “expanding moderately”, which is a small upgrade from the prior statement.  The Fed gave no indication of providing additional stimulus or changing its communications policies.

A lot of economic data is due out tomorrow with Durable Orders, Core PCE inflation, Personal Income, and New Home Sales all scheduled to be released.  The mortgage markets will close early tomorrow on Friday ahead of the Christmas holiday.  Also, note that trading volume is generally very light during the final two weeks of the year, which means that mortgage rates may be more volatile than usual.

Tip #1: Use bullet points to highlight key data.  A typical listing might contain several initial paragraphs requiring a reader to spend a few minutes reading to learn more about the house.  In a world of short attention spans, home buyers often don’t have the patience to read the entire listing and, as a result, they often miss key selling points.  Highlighting key facts with bullet points is a much more effective way to market your listing.  Think like David Letterman by being brief and concise and listing the five or six best aspects of the house in bullet point style.

Tip #2: Highlight the best rooms with photos.  If you write about a gourmet kitchen or fantastic spa shower in the master bathroom, make sure you include pictures of those rooms!  You would be surprised at how many listings don’t include photos of the rooms that will sell the home.  Be intentional about the photos you choose.  If they are out of focus or dark, retake them.  Read your listing and then review the photos to be sure they complement the story you are telling.  Pretend you are a buyer.  What would motivate you to tour the home?

Tip #3: Back up a flashy headline with truth.  We’ve all seen headlines like: “A backyard paradise” or “Convenient to everything.”   Bold and flashy catch attention, but when the prospective buyer arrives and sees a muddy yard with overgrown bushes or a home that’s right next to a gas station, the flashy headline can backfire.  Lofty expectations are not met and the potential home buyer usually won’t stay when you’ve promised something that stretches the truth.

Tip #4:  Proof and fact check before you publish.  Be sure to proofread your listings or have someone else with fresh eyes proof them for you.  Not only are you looking for misspellings and grammar problems, but it’s also time to fact check against your photos.  Does the picture show a 2-1/2-car garage and you list it as 3?  Does the listing boast of wood floors in every room, but there’s linoleum in the laundry room?  Catch inconsistencies before they make it into your ad!

The economic data released last week was positive for the economy, with stronger than expected economic growth and lower than expected inflation.  Retail Sales, Industrial Production, and Housing Starts all exceeded their consensus forecasts. Weekly Jobless Claims fell to the lowest level since April and the NAHB Home Builder Confidence Index rose to the highest level since May 2010. Meanwhile, Core CPI inflation was a modest 2.1% higher than one year ago. For mortgage rates, the tame inflation data was positive, while the relatively strong growth data was negative.

Investors continue to closely monitor the debt troubles in Europe. While Italy’s bond yields remained below the highs reached last week, bond yields in France and Spain climbed to new highs. Investors are concerned that nearly every euro zone country except Germany is at risk of seeing a sharp rise in yields, which will make it even more difficult to meet their debt obligations. Weaker euro zone countries are increasingly looking to Germany for additional aid, but the Germans are reluctant to bear the cost. The level of aid provided by Germany, most likely through the European Central Bank (ECB), will heavily influence the ability of the other countries to resolve their debt problems.

Ahead of Thanksgiving, Existing Home Sales will be released on Monday, revisions to third quarter Gross Domestic Product (GDP) Tuesday, and Durable Orders, Personal Income, Core PCE inflation, and Consumer Sentiment Wednesday. The FOMC Minutes from the November 3 Fed meeting will also be released on Wednesday. There will be Treasury auctions on Monday, Tuesday, and Wednesday. MBS markets will be closed on Thursday for Thanksgiving, but they will be open on Friday.