Mortgage markets made a 4-day losing streak last week on thin holiday volume and overall economic optimism. It was awful news for rate shoppers because mortgage rates were higher every day last week.

The holiday-shortened week marked the third out of 4 during which rates worsened and last week’s action happened to be especially harsh. Monday’s action was the worst for rates since July, for example.

Tuesday’s was only slightly less worse.

Today, conforming, 30-year fixed mortgage rates have reached at a 15-week high — well off the lows set in early-December.

Normally, when mortgage markets worsen this badly, this quickly, it’s because of strong economic data, or growing inflationary expectations. Last week saw neither.

• Existing Home Sales showed strength, but was offset by New Home Sales
• 3rd Quarter GDP showed the economy growing at a slower-than-expected pace
• Inflationary data wasn’t as high as was expected

Furthermore, consumer confidence didn’t rise as planned.

And yet — stock markets gained. All 10 sectors improved and they did so at the expense of mortgage bonds.

This week is again holiday-shortened so expect the same low-volume, high-volatility trading as last week. There’s few data releases save for Tuesday’s Case-Shiller Index. Therefore, watch for momentum trading in either direction.

Markets close early Thursday and re-open Monday, January 4, 2010. If you need to lock a rate, make sure of your loan officer’s hours.

Mortgage markets improved last week as pricing followed a roller coaster-like pattern. After touching a 6-week high Tuesday, rates rallied to weekly lows Thursday, and then jumped back higher Friday.

Despite the improvement last week overall, mortgage pricing remains significantly worse from the all-time lows set in late-November.

Oddly, last week’s most prominent mortgage-related story wasn’t the most influential one.

On Wednesday, the Federal Open Market Committee adjourned from a two-day meeting. It voted to leave the Fed Funds Rate unchanged from its current target zone of 0.000-0.250 percent. This wasn’t news, per se — markets expected the “no change” vote.

However, in its accompanying press release, the Fed appeared more rosy in its economic outlook, citing improving labor markets and low levels of inflation. Results like this are a mixed bag for rate shoppers, but is generally welcomed as good news.

Rates were unchanged after the FOMC release.

The bigger story last week comes from Greece.

Concerns for the country’s debt burden have been in play for weeks, but last week, Standard & Poor’s officially downgraded Greece’s debt rating. The move triggered concerns regarding broader Eurozone debt, especially considering the recent issues in Dubai.

U.S. mortgage markets benefitted from Greece’s troubles as “safe haven” attracted investors, driving down rates Thursday afternoon.

Debt concerns should remain in focus this week. Furthermore, there’s a bevy of domestic data that could swing rates in either direction, too. Most notably, watch for Tuesday’s housing data, Wednesday’s inflation data, and Thursday’s consumer confidence data. Each can be a powerful influence on rates.

There will be less volume on Wall Street because of Christmas and less volume tends to spur mortgage rate volatility. Be wary of swings in either direction.

Markets close early Thursday and will be closed Friday.

Mortgage markets worsened for a second consecutive week last week amid debt default concerns and stronger-than-expected economic data. Dollars left the bond market and mortgage rates suffered.

After re-reaching an all-time low December 1, mortgage rates have since rolled back to mid-November levels.

Rates are still low right now. Just not as low.

And meanwhile, last week’s big story — the one that should concern mortgage applicants between now and early-2010 — is the story of Retail Sales.

Last week, a government report showed that American consumers are spending more this holiday season than was expected. The Retail Sales data implies that consumers are feeling more confident in themselves, and in the economy overall.

This is one of the last remaining pieces in the economic recovery puzzle. Job growth, of course, is another, and both will be in focus this week as the Federal Open Market Committee meets for its final 2-day meeting of the year.

The FOMC isn’t expected to raise the Fed Funds Rate from its current “target range” near 0.000%, but when the FOMC adjourns at 2:15 PM Wednesday, its press release will dominate the news.

Specifically, watch for verbiage on the expected economic growth for 2010 because no matter what the Fed says, mortgage rates will be in flux. As one example:

• If the Fed says inflation is under control, mortgage rates should fall
• If the Fed says inflation pressures are growing, mortgage rates should rise

There’s other news this week, too, including PPI and CPI — 2 popular inflation gauges, plus some housing data, too.

If you need to lock a rate this week, it may be safer to lock prior to the FOMC’s adjournment. Given the recent strength in Retail Sales and the reports of “crowded malls” this past weekend, the Fed may choose to revise its growth estimates for the economy — a move that would be awful for mortgage rates.

Mortgage markets finally reversed course last week, selling off with fury and causing prices to plummet.

When bonds prices fall, rates rise.

The action broke a multi-week winning streak, much to the disappointment of rate shoppers everywhere. Rate hikes came in stages.

First, early in the week, mortgage bonds fell out of favor as traders booked profits ahead of the November jobs report and as concerns over a Dubai Default waned.

Then, on Friday, when the jobs report was ultimately released, it showed a net loss of just 11,000 jobs in November and dip in the Unemployment Rate to 10.0 percent.

Mortgage markets got hit again.

Now, since bottoming last Monday, mortgage pricing is worse by more than 100 basis points. As that figure relates to rates, it’s a jump of anywhere from a quarter- to a half-percent.

Last week was a bad week to not be locked in. Unfortunately, this week may not be much better.

Without much data due for release, momentum should lead mortgage rates higher. Amid a few confidence surveys and a speech by Fed Chairman Bernanke, the biggest news on the week will be Friday’s Retail Sales report.

Retail Sales matters to mortgage rates because consumer spending accounts for two-thirds of the economy. And now, with jobs data looking stronger, Retail Sales are expected to show a modest increase versus last month.

If the data comes in better-than-expected, mortgage rates should rise — much like they did on the jobs data. On the other hand, if the data is weak, expect rates to retreat.

So far this season, Holiday Shopping has been mixed.

Mortgage rates tend to rise faster than they fall so if your homebuying or refinance needs are immediate, it may be prudent to lock your rate rather than to wait and see what happens with the economy and this week’s momentum.

Despite getting worse last week, mortgage rates are still very low.

Mortgage markets improved last week on stronger-than-expected economic data and safe haven buying.

The holiday-shortened trading week amplified what should have been modest gains into large ones.

Conforming mortgage rates dropped by about a quarter-percent last week, dropping them near their best levels of the year — and of all-time.

Oddly, mortgage rates are falling as the U.S. dollar weakens. This is atypical because mortgage bonds are repaid in U.S. dollars. When the value of the dollar is falling, therefore, the value of holding mortgage bonds become less over time.

Investors are snapping up bonds with fury, however. Partially because of lingering concerns related to Dubai, and partially because of faith in the U.S. economy’s long-term health.

This week, those beliefs could be shaken to the core — specifically because of Friday’s jobs report.

It’s no secret that the economy is growing. Housing is improving, banks are re-capitalizing, and businesses are making capital investment. However, employment is lagging.

More than 4 million jobs have been lost this year and the unemployment rate is north of 10 percent for the first time since 1983. Consumers are worried for their jobs and are guarding their wallets the holiday season as a result.

The economy can’t grow without consumer spending, though, and that’s why Friday’s job figures will play an especially large role in mortgage markets. If employment data goes positive, stock markets will rally at the expense of mortgage rates.

Conversely, if data looks worse, mortgage rates should dip.

Either way, it’s a gamble. If you haven’t looked at the benefits of a refinance lately, waiting until Friday to see what happens may be ill-advised. This is because the last two times mortgage rates fell this low, markets corrected within 48 hours, sending rates soaring higher.

Rates look good today. Consider locking something in before rates have reason to rise.