This week in history..."

And last week was indeed one for the record books, between the last minute debt ceiling debate deal, credit rating agency Standard & Poor's decision to downgrade the United State's credit rating one notch from AAA to AA-plus for the first time ever, the Dow Jones plummeting, and home loan rates approaching historic lows once again. Why does all of this matter? Here's what you need to know.
With just hours to spare before the deadline, Congress passed and the President signed the Debt Ceiling/Deficit Reduction Bill last Tuesday, which among other things called for a deficit reduction of $2.4 Trillion over the next 10 years. While this was certainly a good (albeit small) step towards lowering our enormous budget deficit, the uncertainty surrounding the deal combined with continued weak economic reports (including Personal Incomes for June, which grew by the lowest measure since November and Personal Spending, which was at the lowest levels in 2 years) and the credit crisis in Europe caused Stocks to plummet late last week.

Last Thursday was the single worst day for Stocks since October of 2008 and pushed the Dow, Nasdaq and S&P 500 Index into negative territory for 2011. In fact, the Dow has lost nearly 11% after hitting a 2011 high of 12,807 back on May 2. And while it is important for our economy to improve, one result we often see during weak economic times is an improvement in Bonds, including Mortgage Bonds, and therefore home loan rates, to which Mortgage Bonds are tied. Think of it this way: Investors move their money back and forth between Stocks and Bonds, moving their money into the safe haven of Bonds when there is uncertainty or weakness in the economy. That action last week helped Bonds and home loan rates approach their historic best levels once again.

But not all of the news last week was bad for our economy. Friday's Jobs Report from the Labor Department was better than expected, with 117,000 new jobs created during July, above the 84,000 that was expected.and better yet, May and June's numbers were revised higher to add 56,000 more jobs to the former tally! In addition, hourly earnings rose to 0.4% from 0.2% in June, which was a nice increase we haven't seen in quite some time, while the Unemployment Rate fell slightly to 9.1% from 9.2%. The Jobs Report was surprisingly good news, but it is only one report and we need to pay close attention to upcoming economic data. If future reports continue to improve, Bonds and home loan rates could worsen as investors would move their money back into Stocks, which is something we saw a little of late last week.

The bottom line is this: Home loan rates remain near some of the best levels we've ever seen, but about the only thing that is certain in the markets right now is the volatility.