Monday, February 20, 2012

Mortgage Market Guide Vol. 10 Issue 8

Last Week in Review: Good economic news, signs of inflation, and news from Greece all had an impact on Bonds and home loan rates.

A tale of three stories. That's a great way to describe last week's news, as a string of positive economic reports, news out of Greece, and hints that inflation is heating up all worked together to impact Bonds and home loan rates. Here are the details!

A breakfast buffet of better than expected economic data hit the wires last week. In the housing arena, Housing Starts came in better than expected, while both the New York Empire State Index and the Philadelphia Fed Index reported positive manufacturing news. There was also decent labor market news, as Weekly Initial Jobless Claims fell by 13,000 in the latest week to 348,000 - the lowest level since March 2008! Meanwhile, Retail Sales rose in January by 0.4%, the largest gain since October.

Remember, strong economic news often cause money to flow out of Bonds and into Stocks, as investors hope to take advantage of gains. That's partly what caused Bonds (including Mortgage Bonds, to which home loan rates are tied) to worsen late last week.

Also weighing on Bonds and home loan rates was the news that inflation is heating up. Despite the Fed's claim that inflation is moderating, the Core Consumer Price Index (CPI), which strips out volatile food and energy, rose to its highest levels since October 2008. Meanwhile, as you can see in the chart, the wholesale measuring Core Producer Price Index (PPI) rose double the expectations of 0.2%, coming in at 0.4%. Any hints of inflation can serve to spook Bond investors - causing both Bonds and home loan rates to worsen - as inflation can reduce the value of fixed investments like Bonds. This is one story to keep a close eye on in the weeks ahead.

The drama in Greece is another key story to monitor, as it also impacted Bonds and home loan rates last week. Greece sent the markets into the weekend with assuring messages that a deal for them to avoid default is close, and this sense of optimism weighed on Bonds and home loan rates. Our Bonds and home loan rates have benefitted from all the uncertainty in Greece, as investors have seen our Bond Market as a safe haven for their money. Time will tell whether this uncertainty and safe haven trading will continue.

The bottom line is that now is a great time to purchase or refinance, as home loan rates remain near historic lows. Let me know if I can answer any questions at all for you or your clients.

Forecast for the Week: A holiday-shortened week is ahead, and the economic calendar will be light.

As you can see in the chart below, good economic news late last week reversed the improving trend Bonds and home loan rates experienced early in the week. I'll continue to monitor this situation closely.

Chart: Fannie Mae 3.5% Mortgage Bond (Friday Feb 17, 2012)

The capital markets were closed on Monday due to Presidents' Day and the economic calendar is light the rest of the week with just a few reports.
  • On Wednesday Existing Home Sales will be released, followed by the New Home Sales report on Friday. The reports come after last week's positive Housing Starts data.
  • Thursday brings the weekly Initial Jobless Claims Report, which has steadily declined this year to a more job-friendly level.
  • On Friday, the Consumer Sentiment Report will be released.
In addition to those reports, a number of news stories may move the markets, including additional news out of Greece, the Treasury Department's auction of $99 Billion worth of government securities, and movement in the Stock Market. All of those news stories have the potential to negatively impact the Bond Market, depending on how they develop.

Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result. The chart below shows Mortgage Backed Securities (MBS), which are the type of Bond that home loan rates are based on.

When you see these Bond prices moving higher, it means home loan rates are improving - and when they are moving lower, home loan rates are getting worse.
To go one step further - a red "candle" means that MBS worsened during the day, while a green "candle" means MBS improved during the day. Depending on how dramatic the changes were on any given day, this can cause rate changes throughout the day, as well as on the rate sheets we start with each morning. 

View: Drive a car for work? Be sure you’re using the latest mileage rates.

Mileage Rates for 2012

If you drive a car, truck or van for work, you'll want to make sure you know the standard mileage rates that the Internal Revenue Service (IRS) has set for 2012.

These mileage rates are used to calculate deductible costs for driving an automobile for business, charitable, medical and moving purposes. So when it comes to filing your taxes this time next year, you'll need to know these numbers!

New for 2012
As of January 1, 2012, the standard mileage rates are as follows:
  • Businesses = 55.5 cents per mile driven
  • Medical or moving = 23 cents per mile driven
  • Charitable organizations = 14 cents per mile driven
You'll notice that the rate for business miles is unchanged from the mid-year adjustment that became effective on July 1, 2011. The medical and moving rate has been reduced by 0.5 cents per mile.

Make Sure You Qualify

Before you calculate your deduction, make sure you qualify. The IRS reminds taxpayers that they cannot use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle.

In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously. However, the IRS is accepting public comments on this policy.

Additional Option

Although the IRS provides the standard mileage rate for ease and convenience, you're not required to use it. If you prefer, you can calculate the actual costs of using your vehicle instead of using the standard mileage rates.

Remember, if you have questions or concerns, talk to a tax consultant or accountant to discuss your options and unique situation. 

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