Market Analysis

Below is Larry Baer's with Market Alert's commentary for today:

Larry Baer: The National Association of Realtors reported this morning that the pace of existing home sales improved by a surprising 6.5% during the month of December. The improved sales performance was in large part created by a notable drop in mortgage interest rates and the impact of a year-over-year price decline of 15.3%. The inventory of existing homes for sale fell 11.7% from November levels. At the December sales pace there is a 9.3-month supply of homes on the market. Most analysts believe the bottom in the housing market will not "officially" be upon us until the supply of existing homes for sale fall to a 7-month supply or lower. That target is obviously still in the future somewhere - perhaps to appear before the year is over.

The prospects of steady to fractionally lower mortgage interest rates will likely be most strongly determined by global investors' appetite for the $135 billion of bills and notes Uncle Sam will be peddling this week.

The Fed will huddle to plot monetary policy strategies in a two-day meeting beginning on Tuesday with a wrap-up on Wednesday with the release of their traditional post-meeting statement. Short-term interest rates are already within shouting distance of zero - so mortgage market friendly rate cuts are a thing of the past. Mortgage investors will be watching closely for signs - delivered in the text of the statement - the central bank plans to step into the market to buy Treasuries. In my opinion, the Fed will likely choose to evaluate the impact of existing programs for at least another six weeks before implementing anything new. If I'm wrong, and the Fed indicates an intention to become a direct buyer of Treasury issues in the immediate future, look for sharply improved chances mortgage interest rates will edge fractionally lower through at least the end of the week.

In terms of economic data, Friday's 8:30 a.m. ET release of the first estimate of fourth-quarter Gross Domestic Product (a statistical measure of the value of all the good and services produced in the country) will show the economy suffered a massive 5.3% contraction during the last three months of 2008. Mortgage investors have already priced a really nasty number into the market -- so it will likely take a decline of 6.0% or more to boost the prospects for a data driven rally for mortgage interest rates. While such an event is certainly possible - it does not appear to be very probable.