The unwinding of some of the government support for housing finance was evident this past week. The Federal Reserve’s conclusion of its purchases of Fannie Mae and Freddie Mac debt and mortgage-backed securities at the end of March has caused mortgage rates to steadily rise over the past four weeks. According to Freddie Mac’s Primary Mortgage Market Survey, the average rate on a 30-year fixed rate mortgage was the highest it has been since August 2009 last week. This roughly coincides with the end of the federal homebuyer tax credit at the end of April. Recent data from the National Association of Realtors show that the upcoming expiration of the tax credit has sparked buyer activity. The trade group’s pending home sales index jumped 8.2% in the month of February and returned to its highest levels since December.

Equity markets started the trading week by celebrating an upbeat employment report that was released last Friday when exchanges were closed. The Dow Jones Industrial Average continued to flirt with the 11,000 level and traded as high as 11,026 in intra-day trading on Monday but has not been able to hold above that resistance level at the close of trading. The broader market is on pace to end the week with slight gains as the S&P 500 index is trading at 1,191 in early afternoon trading.

While the recent focus has been on employment data, the spotlight will shift slightly in the next couple of weeks as we approach first quarter earnings season. The markets finished the first quarter strong and consumers seem to have re-emerged as evidenced by recent retail sales numbers so expectations are relatively optimistic as we anticipate quarterly results. Rising mortgage rates will be a concern for the housing market especially after the expiration of the federal homebuyer tax credit. The conclusion of the tax credit is already expected to be a near-term drag on housing demand but if rates continue to steadily rise into the latter months of the year, we may see further pressure on home sales especially if employment conditions and the economy do not improved noticeably.

The Economy
Unemployment claims reported an unexpected rise over the past week although a Labor Department official said that the data may be skewed due to seasonal adjustments related to the Easter holiday. In the week ended April 3, initial unemployment claims rose by 18,000 from the previous week to a seasonally-adjusted figure of 460,000.

The U.S. economy in March added the most jobs in any month in three years. The Labor Department reported that non-farm payrolls increased by 162,000 in the previous month while the nation’s unemployment rate remained unchanged at 9.7%. This is the third consecutive month that the unemployment rate has remained at these levels. Currently, non-seasonally adjusted total non-farm employment shows a figure of 128,926,000, a decline of 1.71% from March 2009.

The consumer confidence index increased to a reading of 52.5 in March from an upwardly revised February figure of 46.4. The consumer confidence index has posted increases in four out of the past five months. Sentiment regarding the present business situation and employment were more positive than last month. Consumers' expectations of business conditions, employment, and income in the next six months all turned more optimistic in March.

Housing Market
The National Association of Realtors’ Pending Home Sales Index surged in February which is a positive sign that the housing market may see some strength before the expiration of the federal homebuyer tax credit at the end of April. The index rose 8.2% from the previous month to a reading of 97.6 which is the highest it has been since December.

National average mortgage rates increased again from the previous week to 5.21% in the latest Primary Mortgage Market Survey released weekly by Freddie Mac on April 8th. This is the fourth straight week that the 30-year fixed-rate mortgage has increased and the highest it has been since mid-August 2009. In the week ending April 2nd, the MBA’s seasonally-adjusted purchase index increased a slight 0.2% from the previous week but was still down 18.17% compared to the same time last year. This was the third straight week that the purchase index has increased and the highest the purchase index has been since the end of October. The recent rise in the purchase index is further evidence that buyer activity has increased ahead of the expiration of the homebuyer tax credit. However, overall mortgage application activity fell 11.0% over the past week due to a drop in refinance activity because of rising rates.

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