Many investors wanted to avoid risk during the final week of the year, which helped relatively safer assets such as US mortgage-backed securities (MBS). As a result, mortgage rates fell a little to end near the lowest levels of the year.

While economic growth was well below average for the first three quarters of 2011, a pickup during the fourth quarter bodes well for stronger housing market activity next year. Nearly all of the economic data released during the fourth quarter pointed to improvement. The labor market picked up, consumer confidence rose, and home sales activity increased. This week, in the final piece of housing data for 2011, Pending Home Sales rose 7% from the prior month, to the highest level of the year.

Low mortgage rates also contribute to the improving environment for the housing market. As we enter 2012, mortgage rates are at the lowest levels in decades, making homes very affordable. While there are factors which could push rates higher, such as an unexpected increase in inflation or a major reversal in European debt troubles, the outlook is for mortgage rates to remain relatively low next year as well.

The biggest economic report next week will be the important Employment data on Friday. As usual, this data on the number of jobs, the Unemployment Rate, and wage inflation will be the most highly anticipated economic data of the month. Before the employment data, ISM Manufacturing, Construction Spending, and the FOMC Minutes from the December 13 Fed meeting will be released on Tuesday. Factory Orders will come out on Wednesday. ISM Services and ADP Employment are scheduled for Thursday. Mortgage markets will be closed on Monday in observance of the New Years holiday.

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