Mortgage Market Guide Weekly Issue 6

Last Week in Review: There was a mix of good, bad, and ugly news.

"Bad news goes about in clogs, good news in stockinged feet." Welsh Proverb. And we certainly saw both good and bad news last week. Here are the details and what they mean for home loan rates.

There was good news for the housing sector, as CoreLogic reported that home prices rose by 0.4% in December, from November, and was the tenth monthly gain. In the year ended in December, prices rose by 8.3%, the largest increase since May of 2006.

But news from the Congressional Budget Office (CBO) wasn't as pretty of a picture. The CBO said that growth in the U.S. will slow due to large government spending cuts coupled with new tax increases in 2013. The Gross Domestic Product (GDP) is expected to rise by a meager 1.4% this year. This is clearly not enough to lower the Unemployment Rate, which is estimated to remain near 7.9% in 2013. The CBO went on to say that growth will likely rise in 2014, which would then lower the Unemployment Rate. However, this could result in inflation and rising interest rates.

And the news out of Europe was just plain ugly. Greece is in a depression-like state with no prospect of meeting its third bailout terms. Spain has historically high unemployment and the second highest debt load in the region. Other countries continue to struggle as well.

What does all of this mean for home loan rates? As the drama in Europe continues to unfold, the U.S. Dollar and our Bonds should benefit from safe haven buying. And since home loan rates are tied to Mortgage Bonds, as Bonds benefit, home loan rates should as well. In addition, the Fed's Bond purchase program (known as Quantitative Easing) continues, so it is tough to see Bonds (and therefore home loan rates) worsen significantly without the immediate threat of inflation.

However, one thing to continue to monitor is the seesaw battle that has developed between the Stock and Bond markets. If Stocks continue to do well, this could temper any significant improvement in Bonds and home loan rates.

The biggest take away is that now is a great time to consider a home 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: The second half of the week features several important reports, including retail sales, consumer sentiment and more.

The beginning of the week is quiet, but look for several important reports in the second half of the week.

• On Wednesday, Retail Sales will be released and will gauge how consumer spending habits held up in January.
• Initial Jobless Claims will be reported on Thursday. Last week, claims fell by 5,000 in the latest week to 366,000, just above expectations. The four-week moving average, which evens out any seasonal abnormalities, fell to a five-year low of 350,500.
• New York State Empire Manufacturing and Consumer Sentiment will be released on Friday.

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.

As you can see in the chart below, Bonds attempted to rally last week. I'll continue to monitor their movement closely.

Chart: Fannie Mae 3.0% Mortgage Bond (Friday Feb 08, 2013)

View: Claim a home-office deduction on your taxes? The rules just got easier. See important details below.

IRS Makes Claiming the Home-Office Deduction Easier

A simplified option available for 2013 tax returns requires fewer calculations and will save taxpayers time.
By Cameron Huddleston, Kiplinger.com

If you work from home, deducting costs associated with your home office on your tax return can be a money saver. But claiming this write-off has been somewhat complicated -- until now, that is.

The IRS recently announced a simplified option to make it easier for taxpayers to calculate and claim the home-office deduction. Although those who work at home won't be able to take advantage of the simplified option on their 2012 returns, it will be available for 2013 tax returns, which taxpayers will file in early 2014. The IRS estimates it will reduce the paperwork and record-keeping burden on small businesses by an estimated 1.6 million hours annually.

Currently, to claim the home-office deduction you have to fill out the 43-line Form 8829, which involves substantiating actual expenses. With the new method, you don't deduct actual expenses. Instead, you determine the amount of deductible expenses by multiplying a prescribed rate ($5) by the square footage of the area of your residence that is used for business purposes, not to exceed 300 square feet. So that means the deduction is capped at $1,500.

With the new option, you don't depreciate the portion of your home used for business, and you don't have to allocate deductions for mortgage interest, real estate taxes and casualty losses between personal and business use. You'll simply claim these expenses as itemized deductions on Schedule A. However, to claim the home-office deduction under the new option, you still must use the space regularly and exclusively for your business.

For more information, see IRS Revenue Procedure 2013-13.

Reprinted with permission. All Contents ©2013 The Kiplinger Washington Editors. Kiplinger.com.

Economic Calendar for the Week of February 11 - February 15

The material contained in this newsletter is provided by a third party to real estate, financial services and other professionals only for their use and the use of their clients. The material provided is for informational and educational purposes only and should not be construed as investment and/or mortgage advice. Although the material is deemed to be accurate and reliable, we do not make any representations as to its accuracy or completeness and as a result, there is no guarantee it is without errors.

As your mortgage professional, I am sending you the MMG WEEKLY because I am committed to keeping you updated on the economic events that impact interest rates and how they may affect you.