These days, homes are more affordable than ever as the housing market emerges from a slow winter season and mortgage rates are still near 5 percent.

Soft housing and low rates are an excellent combination for home buyers but whereas home values rise with a gradual pace, mortgage rates can change in an instant.  It’s something worth watching, and also, something you need to hire a professional mortgage consultant to keep an eye out on as well.

Remember that each 0.25% increase to conventional or FHA rates adds approximately $16 per month for each $100,000 borrowed. Nothing to sneeze at, but something to be aware of.

If you’re trying to gauge whether rates will be rising or falling, I’m sorry to say, but there isn’t just one factor to look at.

One keyword to listen for is “inflation”, though. Mortgage rates are highly responsive to inflation, and this topic can swing your mortgage rate in the blink of an eye.

By definition, inflation is when a currency loses its value; when what used to cost $2.00 now costs $2.15. As consumers, we perceive inflation as goods becoming more expensive.  However, it’s not that goods are more expensive, per se – it’s that the dollars used to buy them are worth less.

This is a big deal to mortgage rates because mortgage bonds are denominated, bought, and sold in U.S. dollars.  As the dollar loses value to inflation, therefore, so does the value of every mortgage bond in existence. When bonds lose their value, investors don’t want them and bond prices fall and that causes Mortgage rates to go one way – UP!

Bond Prices down, rates up – very simple.

In today’s market, the relationship between inflation and mortgage rates is helping home buyers. The Cost of Living made its smallest annual gain in 6 years last month and the Fed has repeatedly said that inflation will stay low for some time. This combination is driving investors to buy mortgage bonds which, in turn, is suppressing rates and keeping them lower for the time being.

Please remember that this is not going to last forever, and you REALLY need to cash in while you can – the timing to buy a home in Texas may be as good as it gets, so try to get with a great Realtor and your Texas loan officer to get started.

The Federal Open Market Committee adjourns from a scheduled 1-day meeting today, its second of the year.

The FOMC has held the Fed Funds Rate in a target range of 0.000-0.250 percent since December 16, 2008, and the voting members of the Fed are expected to vote “no change” again today.

However, no change in the Fed Funds Rate doesn’t necessarily mean no change in mortgage rates.  This is because the Fed Funds Rate is a different interest rate from the rates home buyers get from a loan officer.

• Fed Funds Rate : Short-term rate at which banks borrow from each other
• Mortgage Rate : Long-term rate of interest a homeowner pays on a mortgage

Mortgage rates are more responsive to what the Fed says as compared to what the Fed does.

After each FOMC meeting, Fed Chairman Ben Bernanke & Co issue a formal press release to the markets. At roughly 400 words, the statement is a brief commentary on the strengths, weaknesses, and threats for the U.S. economy.

Wall Street watches the statement with great interest and this is why mortgage rates are often volatile on the days of an FOMC adjournment. One mention of a word like “inflation” and traders rush to dump their mortgage bond positions.

Inflation is the enemy of mortgage rates.

After the Fed’s last meeting in January, it told us that the economy had “weakened further”, led by steep declines both in housing and employment. Global demand was off, too.  The negative tone of the Fed’s statement caused mortgage rates to fall to near an all-time low.

This month, expect a less gloomy message.

Since January, there’s been a modest rebound in housing, employment appears more stable, and Retail Sales just posted huge gains.  If the Fed alludes to improvement in any or all three, mortgage rates will likely reverse and zoom higher.

Keep in mind that there’s no way to know know what the Fed will say after its meeting, so if you’re wanting to play it safe, lock you mortgage rates before 2:15 PM ET.

While many are saying that the economy is “switching gears”, a 10% unemployment rate isn’t really indicative of that, now is it?

I was reading an article this morning that said that, in a broader measure, we have 17.3% of the labor force that is unemployed, and the civilian labor force has dropped by over 661,000 people.

Explain to me again how our economy is getting better?

Regardless of every single economic report that comes out, our economy will not be on the road to recovery until these numbers go down and jobs are created.

“No tiki, no laundry!”

In regards to mortgage rates this morning, we’re teetering back and forth. We were up 32 bps, then down 3, and now currently up 16, but not enough for any major movements.

Personally, I took a locking stance yesterday because I didn’t want to gamble with today’s reports, however if you can stomach it, continue to float if you have a little “Vegas” in you.

The only economic report for today is the Jobless Claims, and that figure has come in at 434k, a little bit lower than the 439k that was expected, and not much different than the prior 433k.

Mortgage bonds are not moving much from yesterdays losses, as we are currently up 3 basis points and we are hugging the 1st level of support.

We’re going to have a huge day tomorrow in terms of economic reports. The Hourly Earnings, Non-Farm Payrolls, Unemployment Rate, and the Average Work Week are all coming out tomorrow all at 8:30, so looking on how today plays out to work up a rate-lock strategy for tomorrow.

The GDP (Gross Domestic Product) came in at 2.2%, lower than the expected 2.8% estimate which caused MBS to rise a little, but we are still in negative territory.

I hope you have secured all transactions for the year so that A) You got in while it was really good, and B) To get away from all this drama and enjoy your Christmas.

Be back if anything changes.