This week, once more, we find mortgage rates are on a downward trajectory. Conforming mortgage rates have returned to near all-time lows. After Friday morning’s Non-Farm Payrolls report, however, those low rates may come to an end.

It’s a risky time for Washington State home buyers and would-be refinancers to be without a locked rate.

Each month, on the first Friday, the Bureau of Labor Statistics releases its Non-Farm Payrolls report for the month prior. More commonly called the “jobs report”, Non-Farm Payrolls provides a sector-by-sector employment breakdown, and the nation’s Unemployment Rate.

In December 2011, the government reported 200,000 net new jobs created, and an Unemployment Rate of 8.5%.

For January 2012, economists project 135,000 net new jobs with no change in the Unemployment Rate and, depending on how accurate those predictions are proved, FHA and conforming mortgage rates for homes in Thurston County are subject to change. The monthly jobs reports tends to have an out-sized influence on the direction of daily mortgage rates.

The connection between jobs and mortgage rates is fairly direct.

Job growth is a key cog in the economic growth engine and mortgage rates change daily based on short- and long-term economic expectation. As more people join the workforce, economic expectations change; the economy tends to expand, breeding optimism among investment. When this occurs, it often spurs investment in the stock market, which tends to leads mortgage rates up.

In short, in a recovering economy, when job growth is strong, all things equal, mortgage rates rise. Home affordability suffers.

So, for today’s rate shoppers, Friday’s job report represents a risk. The economy has added jobs over 15 straight months, a streak that’s added 2.1 million people to the workforce. Although the jobs market remains weak and well off its peaks from last decade, a 15-month streak is worth watching. More jobs means more more income earned nationwide, more money spent by households, and more taxes collected by governments.

This items build a foundation for economic growth and Wall Street is watching.

If tomorrow’s Non-Farm Payrolls shows more jobs created than the estimated 135,000, mortgage rates are expected to rise. If the jobs figures falls short, mortgage rates should fall.

The Non-Farm Payrolls report is released at 8:30 AM ET.

Standard & Poors released its November 2011 Case-Shiller Index this week. The index measures the change in home prices from month-to-month, and year-to-year, in select U.S. cities.

According to the data, for the second straight month, home values fell in 19 of the Case-Shiller Index’s 20 tracked markets. In addition, also for the second straight month, Phoenix, Arizona was the lone Case-Shiller-tracked city in which home values rose.

Overall, November’s Case-Shiller Index showed a 1 percent decrease in home values between October and November 2011, and a near-4 percent decrease between November 2010 and 2011, putting home values at roughly the same levels as 8 years ago. Don’t read too far into it, however.

The Case-Shiller Index, though widely-cited, remains widely-flawed.

As a buyer or seller in King County, for example, , relying on the Case-Shiller Index for market research can lead you to improper conclusions. To understand the Case Shiller Index’s methodology is to understand why.

First, the Case-Shiller Index draws its data from a very limited geography.

There are more than 3,100 municipalities nationwide. The Case-Shiller Index tracks just 20 of them. And they’re not the 20 largest, either. Four of the Top 10 Most Populous U.S. Cities are excluded (Houston, Philadelphia, San Antonio, San Jose) whereas Minneapolis and Tampa are not.

Minneapolis is the 48th largest city in the United States. Tampa is #55.

Next, when Case-Shiller Index gathers its data from its 20 cities, it only includes the home sale data of single-family, detached homes. This means that sales of condominiums and multi-unit homes are specifically excluded from the index. There are some cities — Chicago and New York, for example — where condominium sales represent a large percentage of the overall market.

The Case-Shiller Index ignores that.

And, lastly, when the Case-Shiller Index is published, it’s published on a 60-day delay. Its data is not “current”, therefore, and does little to tell buyers and sellers of Olympia and the country what’s happening in their home markets right this minute. Instead, the Case-Shiller Index tells us how the housing market looked two months ago.

If you’re active in the real estate market, either as a buyer or a seller, the Case-Shiller Index does you little good. For real-time data that actionable, speak to a real estate professional instead. It’s where you’ll find your best, most reliable and relevant information.

The Fed Funds Rate has been near zero percent since December 2008.

For the third consecutive month, the Fed Funds Rate vote was nearly unanimous. Just one FOMC member dissented in the 9-1 vote, objecting only to the language used in the Fed’s official statement.

In its press release, the Federal Reserve noted that the the U.S. economy has “expanding moderately” since its last meeting in December 2011, adding that the growth is occurring despite “slowing in global growth” — a reference to ongoing economic uncertainty within the Eurozone.

The Federal Reserve expects moderate economic expansion through the next few quarters but is wary of “strains” from global financial markets, and these three threats to the U.S. economy :

1. The housing sector remains “depressed”
2. The unemployment rate remains “elevated”
3. Fixed business investment has “slowed”

On the positive side, the FOMC said that household spending is rising and inflation remains in-check. The group also believes that employment will gradually improve nationwide going forward.

The Federal Reserve neither introduced new economic stimulus, nor discontinued existing market programs.

Immediately following the FOMC’s statement, mortgage markets rallied, pressuring mortgage rates to fall in and around Olympia.

Mortgage rates remain near all-time lows and, for homeowners willing to pay points plus closing costs, conventional, 30-year fixed rate mortgages can be locked at below 4 percent. If you’re in the process of buying or refinancing a home in Washington State , it’s a good time to lock a mortgage rate with your lender.

The FOMC’s next scheduled meeting is a one-day event slated for March 13, 2012.

Data was strong across all categories last week.

• Home Resales :Existing Home Sales rose 5%
• New Homes : Single-Family Housing Starts rose 4%
• Builders : Home Builder Confidence rose to a 5-year high
• Jobs : Jobless claims fell to lowest level since April 2008
• Inflation : CPI remained in balance

In addition, European leaders moved closer to a final resolution on the Greek sovereign debt default situation.

Overall, the action gave investors reason for optimism in the U.S. economy, and economies abroad. This drew money away from the U.S. mortgage bond market, which caused mortgage rates to rise.

Freddie Mac reports the average 30-year fixed rate mortgage slipping 0.01 percentage points to 3.88% nationwide, with an accompanying 0.8 discount points and complete set of closing costs. These costs are slightly higher as compared to the week prior.

1 discount point is equal to one percent of the borrowed loan size.

Freddie Mac’s weekly mortgage rate survey puts the conforming 30-year fixed rate mortgage under 4 percent for 7 consecutive weeks.

This week, mortgage rates may rise; the week is anchored by a 2-day Federal Open Market Committee meeting. Whenever the FOMC meets, mortgage rates can be volatile.

The Ben Bernanke-led FOMC is not expected to raise the Fed Funds Rate from its current target range near 0.000 percent, but it’s not what the Fed does that can change mortgage rates as much as it is what the Fed says.

After its 2-day meeting concludes Wednesday, the FOMC will issue its customary statement to the markets, to be followed by a press conference led by Chairman Bernanke. Wall Street will watch the press release and conference for clues about the Fed’s next steps and its outlook for the U.S. economy.

If the Fed indicates that the economy is growing, mortgage rates in Lacey are likely to rise. Conversely, if the Fed indicates that the economy is slowing, mortgage rates are likely to fall.

Other factors influencing mortgage rates this week include the President’s annual State of the Union address (Tuesday), the Pending Home Sales Index (Wednesday) and New Homes Sales data for December (Thursday).

Mortgage rates remain low but may not stay that way. If you’re looking for the best rates of the year, this week may be your chance.

When it comes to housing data, sometimes you have to look past the headlines. December’s Housing Starts data offers a terrific illustration of why.

Each month, the Census Bureau tallies Housing Starts for the month prior. A “housing start” is a home on which construction has started.

The Housing Starts report is separated by property type. There is a count for single-family homes; a count for 2-4 unit homes; and a count for buildings of 5 units or more, a category including apartments and condominiums.

In December, as reported by the government, Housing Starts fell 4 percent nationwide overall. This runs contrary to recent strength in housing and the story was quickly picked up by the press :

• U.S. Housing Starts Fall More Than Forecast (BusinessWeek)
• U.S. Housing Starts Fall (MarketWatch)
• December Housing Starts Are Worse Than Expected (Fox Business)

Now, although these headlines are factually true, they’re also are a little bit misleading.

Housing Starts did fall 4 percent last month but that was for all Housing Starts, across all three property types. Data like this is somewhat irrelevant to home buyers in Washington State or anywhere else nationwide.

Few buyers purchase 2-4 unit homes, and almost nobody purchases an entire apartment building. Rather, it’s the Housing Starts reports’ “single-family” tally that matters because that’s the home type that the majority of home buyers purchase.

In December, for the fourth straight month, Single-Family Housing Starts increased.

Single-family housing starts climbed 4 percent last month to 470,000 units on a seasonally-adjusted, annualized basis. This is the highest number of Single-Family Housing Starts since April 2010 — the last month of last year’s home buyer tax credit.

The Single-Family Housing Starts data is the latest in a series of data that point to a housing rebound nationwide. New Home Sales, Existing Home Sales, Pending Home Sales and Homebuilder Confidence has each posted multi-month highs and all are poised for strong gains into 2012.

If you’re planning to buy a home in 2012, consider buying in between now and March rather than at some point later. Home prices — and mortgage rates- are likely to move higher.

Homebuilder confidence is soaring.

For the fourth straight month, the National Association of Homebuilders reports an increase in its Housing Market Index. The index climbed 4 points to 25 this month – its second four-point gain since October.

With home sales activity increasing across all four regions, the monthly HMI has now nearly doubled in value since June 2011.

The HMI is now at a 55-month high.

The Housing Market Index itself is a composite reading; the result of three home builder surveys sent by the National Association of Homebuilders to its members monthly. Home builders report back on current single-family home sales volume; projected single-family home sales volume for the next 6 months; and current buyer “foot traffic”.

The NAHB then results compiles the surveys into a single reading.

In January, home builders reported improving sales conditions across all three categories :

• Current Single-Family Sales : 25 (+3 from December)
• Projected Single-Family Sales : 29 (+3 from December)
• Buyer Foot Traffic : 21 (+3 from December)

The Housing Market Index corroborates recent U.S. government data that suggests housing is mending in Washington State. Both Housing Starts and New Home Sales have out-performed expectations of late, it’s been shown, and the stock of new homes for sale nationwide is dwindling.

All of this, of course, is happening as demand from buyers heats up.  Foot traffic through builder homes is higher than it’s been in more than 3 years, say the builders — a time period that includes the duration of the 2010 home buyer tax credit.

It’s no surprise, therefore, that builders expect a strong 2012.

Jobs data is improving, mortgage rates remain low, and housing momentum is building. For home buyers in Lacey , however, it may spell higher home prices ahead. Big demand and small supply creates scarcity and scarcity correlates to rising prices.

If you’re shopping new homes, the best “deal” may be the one you find today.

According to Freddie Mac’s weekly mortgage rate survey, the average 30-year fixed rate mortgage rate fell to 3.89% nationwide. In order to get access to 3.89% mortgage rates, Freddie Mac said, mortgage applicants should expect to pay a full set of closing costs plus 0.7 discount points.

1 discount point is equal to 1 percent of your loan size.

Loans with “low closing costs” or “no closing costs” will be at higher rates than Freddie Mac’s published, average rate.

The biggest reason why mortgage rates fell last week is because — once more — concerns over European sovereign debt resurfaced on Wall Street. This has been an ongoing story for more than a year, and one that won’t likely end soon.

Several Eurozone nations saw their respective credit ratings downgraded last week, a move that sparked safe haven buying of U.S. mortgage bonds. France was stripped of its top credit rating. Slovakia, Italy and Austria were each downgraded, too.

Markets were also influenced by a conflict between Greece’s creditor banks and the nation-state’s government. The breakdown in talks increases the likelihood of the Eurozone’s first sovereign default.

Meanwhile, domestically, in-line Retail Sales figures and rising consumer confidence helped to prop up the U.S. dollar, a move that’s linked to lower mortgage rates.

This week, the markets were closed for the federal holiday Monday, and re-open Tuesday without much data on which to trade. Several inflationary reports are set for release including the Producer Price Index and the Consumer Price Index; and, in housing-related data, we’ll see the Housing Starts report and Existing Home Sales figures for December.

Expect mortgage rates to follow the Eurozone story this week. Pessimism and weak data will be good for mortgage rates in Washington State and nationwide. Strength will lead mortgage rates higher.

If you’re still floating a mortgage rate or have otherwise yet to lock, mortgage rates are lower than they’ve been in history. It’s an ideal time to make aan interest rate commitment.

As a comparison, the minutes of the last FOMC meeting contained 60 paragraphs and 7,027 words. The post-meeting press release was just 5 paragraphs and 382 words.

December’s Fed Minutes shows Fed members with a positive, cautious, take on the economy.

Recent data suggests that the U.S. economy is expanding, the Fed said, but “strains” in global financial markets pose “significant risks” to the downside. This tell us that the Fed believes its economy-stimulating programs are working, but that officials remained concerned by events in the Eurozone.

The U.S. economy could be impacted by fallout.

Other meeting consensus included :

• On growth : The economy is expanding, despite slowing in “global economic growth”
• On housing : Data suggests the “depressed” market “could be improving”
• On inflation : Prices are stable, and remain within tolerance levels

The Fed’s analysis was of little surprise to Wall Street, and going forward, Fed Chairman Ben Bernanke wants to keep it that way. The Fed Minutes contained a passage regarding market communication, and how the Fed will be more pro-active about it in the future.

With the release of its minutes, in a section called “Market Policy Communications”, the Federal Reserve showed its plans to release 4 times annually its economic forecasts, and plans for the Fed Funds Rate. This signals in a shift in Federal Reserve transparency.

The Federal Reserve will begin including the forecast in its economic projections beginning after its next policy meeting, January 24-25, 2012.

Mortgage rates in Washington State were little changed after the release of the Fed Minutes.

Consumer spending continues to rise nationwide, fueled by jobs growth and a rosier outlook for the U.S. economy. Unfortunately for mortgage rate shoppers, it may also lead to higher mortgage rates later this week.

Thursday morning, the Census Bureau will release its U.S. Retail Sales data for December. The report is expected to show an 18th consecutive monthly increase, with analysts projecting sales volume higher by 0.4 percent from November.

This would be double the increase from last month, which saw a 0.2 percent increase in Retail Sales.

The Retail Sales report tallies receipts collected by retail and food-service stores nationwide. When the sum of these receipts rise, it puts pressure on mortgage rates to do the same. The connection is straight-forward.

Retail Sales are the largest part of “consumer spending” and consumer spending accounts for the majority of the U.S. economy — up to 70 percent, by some estimates.

As the economy goes, so go mortgage rates.

Remember: today’s ultra-low mortgage rates have been partially fueled by weak economies — both domestic and abroad — going back 4 years. Stock markets have sold off as economies have faltered worldwide, leading investors to seek refuge in the relative safety of U.S.-backed mortgage bond market. The new-found demand for mortgage-backed bonds has helped drop mortgage rates to levels never seen in history.

When economic recovery is apparent, therefore, we should expect a mortgage rate reversal, and should expect for it to happen quickly. Stock markets should rise; bond markets should fall. Mortgage rates will climb. Rate shoppers will lose.

Last week’s strong jobs report sparked hope for the U.S. economy. If Thursday Retail Sales data reveals similar strength, the risk in “floating” your mortgage rate may be too great. The safer play is to lock your rate today.

The Retail Sales report will be released at 8:30 AM ET.

13 months ago, as part of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, Congress enacted a one-year cut to FICA payroll taxes.

FICA stands for Federal Insurance Contributions Act. Taxes collected under FICA fund such programs as Social Security and Medicare.

The stimulus plan temporarily lowered tax rates for salaried workers from 6.2% to 4.2%; and for self-employed persons from 12.4% to 10.4%. Effective January 1, 2012, “regular” tax rates were to return.

That is, until late-December 2011. In one of its last moves of the year, Congress passed a temporary, two-month extension to the payroll tax cut, extending it through February 29, 2012. The expected cost to the U.S. Treasury is $33 billion.

To recoup those costs, Congress has turned to Fannie Mae, Freddie Mac and the FHA.

Each entity has been ordered to collect news fees on each new mortgage is backs, and has been told to forward said fees to U.S. Treasury directly. There’s no “workaround” allowed or forgiveness applied — each new loan is subject to the payment.

The rules are listed on page 17 of the law’s final draft, in a section unambiguously titled “Title IV — Mortgage Fees and Premiums”.

According to the law :

• Fannie Mae and Freddie Mac must collect an average fee of no less than 10 basis points (0.1%) per new loan
• The FHA must raise its monthly mortgage insurance premiums 10 basis points for all new loans

The expected cost to consumers is no less than $10 monthly per $100,000 borrowed. Some analysts, however, expect Fannie Mae and Freddie Mac to collect more than is minimally required. This could add an additional $30-50 to your monthly mortgage payment per $100,000 borrowed.

Therefore, if you’ve been shopping for a home or for mortgage rates in Lacey , take advantage. Within days, lenders are expected to start collecting Payroll Tax Extension fees from mortgage applicants — a move that will cost you money.

Lock today to avoid the big fees. Save yourself money.