Mortgage rates continue to hit record lows as the economic activity slows and the federal government continues to seek ways to stimulate housing market activity. 2.6 million jobs were shed in 2008. This represents the worst year for job losses since the US worked through demobilizing after World War II. Nearly every other economic indicator also fell in December. Retail sales dropped another 1.8%. Consumer Confidence hit an all-time low. Almost every manufacturing gauge also showed signs of strain.

While the economic news seems bleak, and is certainly making great media headlines, there is some positive news afoot. Most inflation indicators are showing little to no price pressures, and programs implemented to help the housing market may have begun to slow housing price depreciation.While the economy seeks sure footing, the Fed did made a historic move, changing its Fed Fund target rate from a specific rate to a target range of zero to 0.25%. However, this move was overshadowed by news that the Fed’s plan to buy over $600 billion in agency-backed mortgage debt is firmly underway. While most government plans take significant time to implement, the Fed has already purchased tens of billions in debt.

This month could very well see more record lows for mortgage rates as economic news continues to highlight our recessionary challenges. Additionally, more programs may be on the way to help the housing market. Generally, programs that create economic stimulus drive rates upward. However, some of these programs may function to drive rates even further downward. If Congress is able to force the billions in foreclosure-assistance in the next round of TARP funding, we could see some returning demand for housing-related securities as these securities’ relative risk may be perceived as less. All of this downward pressure on rates could be reversed in coming weeks if the market perceives the next economic stimulus package as the solution to our current economic challenges. The sooner the market believes we’ll see a recovery, the sooner rates go up.