Are We Losing the Mortgage Interest Deduction?

There’s a lot of talk in the news about the financial cliff, and the expectation of both sides giving in. One item that some want to be on the table is the mortgage interest deduction. Actually, this has been brought up for quite a number of years and was brought up in 2010 as well.

What is the mortgage interest deduction

When filing out your taxes, you can deduct the amount you paid for your mortgage interest against your gross income. It’s especially loved in areas where the cost of housing is high. It’s also a way that home investors can provide savings back to their renters.

How much would I lose?

The San Jose Mercury News published an article with some charts using the 2010 rates and income levels. For Santa Clara County, the median price was $610,500, and the first full year’s interest is $16,945. This would yield a tax savings of $5,084 which could be a nice vacation.
If you’re a renter, your rent may go up if your landlord loses their deduction. These costs usually get passed along down the line.

Is there anything good about the phaseout?

Some believe that a tax deduction is inefficient and a tax credit would be a better way to help more people. This blog post at HSH.com explains in greater detail about how the mortgage interest deduction was created, and their opinion as to how it’s not helping those it should.

SFGate also explains the history and the effectiveness of the mortgage interest deduction.  Their conclusion is that it may change form, but it will always be a part of our tax structure.

So, if you’re concerned, find a professional tax advisor and review your current mortgage and taxes, then you will know a firmer number.  Contact your representatives and let them know how it will impact you.

Do you think the federal government will phase out mortgage interest deductions?

This Week's Market Commentary

This week brings us the release of six relevant economic reports for the markets to digest along with two potentially important Treasury auctions. All of the week's data is being posted over four days with tomorrow being the only day with nothing scheduled. We should see a fair amount of movement in mortgage rates this week with the most movement likely coming the middle part of the week.

Tuesday has two of the week’s more important reports scheduled. October's Durable Goods Orders is the first and will be posted at 8:30 AM ET. This data helps us measure manufacturing strength by tracking orders for big-ticket items, but is known to be quite volatile from month-to-month. It is expected to show a 0.4% decline in new orders. A larger than expected drop would be considered good news for the bond market and mortgage rates as it would indicate manufacturing sector weakness.
November's Consumer Confidence Index (CCI) will be released late Tuesday morning by the Conference Board. It gives us a measurement of consumer willingness to spend. If consumer confidence is rising, analysts believe that consumers are more apt to make larger purchases, essentially fueling economic growth. This makes long-term securities such as mortgage-related bonds less attractive to investors and usually leads to higher mortgage rates. Analysts are expecting to see a small increase in confidence from last month's level, meaning consumers were more optimistic about their own financial situations this month than they were last month. A weaker reading than the 73.0 that is expected would be good news for mortgage rates, while a stronger reading could push mortgage rates higher Tuesday.

Wednesday’s only relevant data is October's New Home Sales report. It will give us an indication of housing sector strength, but is the week's least important release. Analysts are expecting to see little change between September's and October's sales of newly constructed homes. It will take a large change in sales for this data to influence mortgage rates, partly because this report tracks such a small portion of all home sales.

Also Wednesday, the Federal Reserve will release their Beige Book at 2:00 PM ET. This report, which is named simply after the color of its cover, details economic conditions by region. That information is relied on heavily during the FOMC meetings when determining monetary policy, so its results can influence bond trading and mortgage rates if it shows any significant surprises. More times than not, this report will not influence the markets enough to cause intra-day changes to mortgage rates, but the potential to do so does exist.

The first revision to the 3rd Quarter Gross Domestic Product (GDP) will be posted early Thursday morning. It is expected to show a sizable upward revision from last month's preliminary reading of a 2.0% annual rate of growth. The GDP measures the total of all goods and services produced in the U.S. and is considered to be the best measurement of economic activity. Current forecasts call for a reading of approximately 2.8%, meaning that there was more economic activity during the third quarter than previously thought. This would be bad news for the bond market and mortgage rates because solid economic growth hurts bond prices and mortgage rates.

Friday’s sole piece of economic data is October's Personal Income and Outlays data. This data measures consumers' ability to spend and their current spending habits. This is important because consumer spending makes up over two-thirds of the U.S. economy. It is expected to show that income rose 0.2% and that spending increased 0.1%. Weaker than expected readings would mean consumers had less money to spend and were spending less than thought. That would be favorable news for bonds and could lead to improvements in mortgage rates Friday morning.

In addition to this week's economic reports, there are two relatively important Treasury auctions that may also influence bond trading enough to affect mortgage rates. There will be an auction of 5-year Treasury Notes Wednesday and 7-year Notes on Thursday. Neither of these sales will directly impact mortgage pricing, but they can influence general bond market sentiment. If the sales go poorly, we could see broader selling in the bond market that leads to upward revisions in mortgage rates. However, strong investor demand usually make bonds more attractive to investors and brings more funds into the bond market. The buying of bonds that follows often translates into lower mortgage rates. Results of the sales will be posted at 1:00 PM ET auction day, so look for any reaction to come during afternoon hours.

Overall, I am expecting Monday to be the least important day of the week while Tuesday will likely be the most important due to the importance of that’s day data. Thursday’s GDP could also be a market mover if it disappoints the markets or shows a much stronger than expected reading. We have seen a little pressure in mortgage rates recently as stocks climbed higher, but I suspect we could see some improvement in rates this week. This is especially true if the economic data on the calendar gives us weaker than expected results or stocks give back some of their recent gains. However, as with any active week, please maintain contact with your mortgage professional if still floating an interest rate and closing in the near future. 

This Week's Market Commentary

This holiday-shortened week brings us the release of four relevant economic reports for the markets to digest. All of the week's data is being posted over three days due to the Thanksgiving holiday, so the first part of the week should be the most interesting for mortgage shoppers.

October's Existing Home Sales data will be posted by the National Association of Realtors late Monday morning. It gives us a measurement of housing sector strength and mortgage credit demand by tracking home resales. This report is expected to show a small decline in sales, meaning the housing sector weakened slightly last month. That would be good news for the bond market and mortgage pricing, but unless it shows a significant surprise, it will likely not have a major impact on Monday's mortgage rates.

Tuesday's only relevant data is October's Housing Starts. This report gives us an indication of housing sector strength, but usually does not have a noticeable impact on mortgage rates. I don't expect this month's version to be any different unless it varies greatly from analysts' forecasts. It is expected to show a sizable decline in starts of new homes, meaning the new home portion of the housing sector softened last month.

Also Tuesday is a public speaking engagement by Fed Chairman Bernanke. He will be speaking at a function in New York at 12:15 PM ET, which will be followed by Q&A. This speech isn’t of much importance to the markets. However, anytime he speaks his words have the potential to influence the financial and mortgage markets. Therefore, we will be watching it, but with little concern.

The revised November reading to the University of Michigan’s Index of Consumer Sentiment will be posted late Wednesday morning. It will give us a measurement of consumer willingness to spend. If confidence is rising, consumers are more apt to make a large purchase in the near future, fueling economic activity. Analysts are expecting to see a small downward revision to the preliminary reading of 84.9. Unless we see a significant variance from the forecasted 84.5, I don't think this data will cause much movement in mortgage rates Wednesday.

The final report of the week will come from the Conference Board at 10:00 AM ET Wednesday when they release their Leading Economic Indicators (LEI) for October. This is a moderately important report that attempts to predict economic activity over the next three to six months. It is expected to show a 0.2% increase, meaning economic activity will likely rise modestly over the next couple of months. Generally speaking, this would be bad news for bonds. However, since this data is considered only moderately important, its results need to vary by a wide margin from forecasts for it to affect mortgage rates.

The financial markets will be closed Thursday in observance of the Thanksgiving Day holiday. There will not be an early close Wednesday ahead of the holiday, but they will close early Friday and will reopen next Monday morning. I suspect that Friday will be a very light day in bond trading as many market participants will be home. Banks have to be open Friday, but we will likely see little change to mortgage rates that day.

Overall, I believe that we will see more volatility in the markets and mortgage rates the first couple days of the week. The most important day will probably be Wednesday, while the least important will be Friday. Also worth noting are rising tensions and activities overseas that could affect the global markets and carry into ours. As we have seen recently, those crisis and the markets can get pretty active at any time, so please be careful and maintain contact with your mortgage professional if you have not locked an interest rate yet. 

Are You Ready for Black Friday?

With businesses like WalMart, Target and Toys R Us announcing that they will open on Thanksgiving Day, the lines of Black Friday shopping have blurred into the Thanksgiving holiday. Amazon has announced that they will be providing Black Friday style savings that started last week and will continue on.

Some families are turning it into a tradition of eating early, napping, and then going shopping for the best deals.  For some, it’s a way of making their limited budget go farther.

Some stores hold items back and then have a large unveiling for Black Friday.  It’s still a good idea to scope out the stores, where they have merchandise, and create your plan.

So in today’s blog, we’re going to provide some resources so you can make your plan whether it’s online, or waiting in line.

BFADS

The granddaddy of all sites is bfads.net.  It was founded by a CalPoly student who would get ahold of Black Friday circulars before they were made available, and he would post them on his site.  In the beginning, companies would hit him with a cease and desist order, but over time, they realized that it was a great way to get people excited about shopping, and now, he provides the circulars starting November 1st.

 Other Resources

• blackfriday.com
• blackfriday.fm

And you can also find out more about deals on the websites of the businesses you’re interested in.

Things to Remember

• Create your list of who you’re buying for.  If it’s clothing, make sure you have their sizes and color preferences as items may not be returnable.  It could be exchange only.  And if it is returnable, it will only be for the amount you paid.
• See if you can shorten your list.  Talk with your friends about exchanging cookies or letters of how much you appreciate one another.
• Decide on your budget and be firm on it.  It’s easy to get caught up in the moment of what appears to be a great deal, but you don’t want the credit card hangover in January.
• Consider bringing only one credit card or the cash in your budget.
• If you bring someone else, help each other to stay on target.
• Make sure you budget something for yourself.   After all, you’re the one out there.
• Be safe.  If there’s a donnybrook over the last Giggle Me Something Doll, you really don’t want to be a part of it.  Better to wait and pay a bit more later then pay for medical bills now.  And watch out for crowds that surge. You don’t want to fall down and get stepped on.
• There will always be jerks.  Remember to breathe and don’t lower yourself to their level.
• Bring water to stay hydrated.
• Wear comfortable shoes.

And don’t forget to plan in Cyber Monday when companies have additional sales!

Do you save up to buy something major during black friday?  Or do you just do your holiday shopping?  Or do you stay home and enjoy the quiet day?

This Week's Market Commentary

This holiday-shortened week brings us the release of four monthly economic reports for the markets to digest along with the minutes from the last FOMC meeting. With very important data scheduled for release two different days and relevant data three of the four trading days, we will likely see a fair amount of volatility in the markets and mortgage pricing this week. The bond market will be closed Monday in observance of the Veteran’s Day holiday, but the stock markets will be open for business. While we may see some lenders open for business, many likely will not issue new rates or lock agreements until Tuesday morning when the bond market reopens.

There is nothing of relevance scheduled for release Tuesday, leaving the bond market to movement in stocks and overseas news. But Wednesday makes up for it with three events scheduled that we need to watch, including two of the week’s more important economic reports. The Commerce Department will give us October's Retail Sales figures early Wednesday morning. This data measures consumer spending, which is considered extremely important to the markets because it makes up over two-thirds of the U.S. economy. It is expected to show a 0.2% decline in retail-level spending, meaning consumers spent less last month than they did in September. An increase in spending would be considered negative news for bonds because increases in spending fuels an economic recovery and raises inflation concerns in the bond market. If Wednesday's report reveals a larger than expected decline in spending that indicates consumers spent less than thought, bonds should react favorably, pushing mortgage rates lower. If it shows an unexpected increase, mortgage rates will likely move higher.

The second report of the morning Wednesday is the release of October's Producer Price Index (PPI) from the Labor Department, which is one of the two key inflation readings on tap this week. The PPI measures inflationary pressures at the producer level of the economy. There are two portions of the index that are used- the overall reading and the core data reading. The core data is the more important of the two because it excludes more volatile food and energy prices. If it reveals stronger than expected readings, indicating that inflationary pressures are rising at the manufacturing level, the bond market will probably react negatively and cause mortgage rates to move higher. Analysts are expecting to see no change in the overall reading and a 0.1% increase in the core data.

Also worth noting is the release of the minutes from the last FOMC meeting Wednesday afternoon. Traders will be looking for any indication of the Fed's next move regarding monetary policy. They will be released at 2:00 PM ET, so any reaction will come during afternoon trading. This release is one of those that may cause some volatility in the markets after they are posted, or could be a non-factor. If they show anything surprising, we may see some movement in rates Wednesday afternoon, but it is more likely there will be little reaction.

Thursday’s only monthly report is October's Consumer Price Index (CPI) at 8:30 AM ET. This index is similar to Wednesday's PPI, except it measures inflationary pressures at the more important consumer level of the economy. We consider the CPI one of the most important reports the bond market gets each month. The overall reading is expected to show a 0.1% increase from September's level while the core data is also expected to rise 0.1%. Weaker than expected readings would be good news for bonds and mortgage rates, while larger than forecasted increases could lead to higher mortgage rates Thursday morning.

The week closes with only a moderately important release Friday morning. October's Industrial Production data will be posted mid-morning Friday. It gives us a measurement of manufacturing sector strength by tracking output at U.S. factories, mines and utilities. It is expected to reveal a 0.1% increase in production, indicating little strength in the manufacturing sector. Stronger levels of production would be considered bad news for the bond market and mortgage rates, but this data is not as important as the most of the week’s other reports are. Therefore, it will likely take a sizable variance from forecasts for it to have a noticeable impact on mortgage pricing.

Overall, look for Wednesday to be the most important day of the week with two very important reports scheduled and the FOMC minutes, but Thursday’s CPI is also a major release for the bond market. It is difficult to label any particular day as the quietest day, but Tuesday is a good candidate. The key releases will be Wednesday's Retail Sales and Thursday's CPI reports. They will probably determine whether rates close the week higher or lower than Tuesday's opening levels. Since this is likely to be a fairly active week for mortgage rates, it would be prudent to maintain regular contact with your mortgage professional if still floating an interest rate. 

This Week's Market Commentary

This week brings us the release of only two relevant monthly economic reports but neither of them is considered to be highly important. There are also two important Treasury auctions this week that may influence mortgage rates more than the minor economic data will. I don’t foresee any significant happening with mortgage rates unless something quite unexpected happens, but we should still see minor changes to pricing several days.

Neither of this week's monthly economic reports is expected to lead to noticeable changes in mortgage rates. This means that the stock markets will likely be a significant influence on bond trading and mortgage rates in addition to the two particular Treasury auctions. If the stock markets rally, we could see funds shift from bonds into stocks that potentially offer better returns, leading to higher mortgage rates. If stocks fall from current levels early in the week, bonds and mortgage shoppers should benefit.

The two important Treasury auctions come Wednesday and Thursday when 10-year Notes and 30-year Bonds are sold. The 10-year sale is the more important of the two as it will give us a better indication of demand for mortgage-related securities. If the sales are met with a strong demand from investors, we should see the bond market move higher during afternoon trading the days of the auctions. But a lackluster interest from buyers, particularly international investors, would indicate a waning appetite for longer-term U.S. securities and lead to broader bond selling. The selling in bonds would probably result in upward revisions to mortgage rates.

The first monthly data of the week is September's Goods and Services Trade Balance report early Thursday morning. It helps us measure the size of the U.S. trade deficit, but usually is not a major influence on bond trading or mortgage pricing. It does affect the value of the U.S. dollar, which makes U.S. securities more attractive to international investors when the dollar is strong. This is because the securities' proceeds are worth more when sold and converted to the investor's domestic currency. However, its results will not likely directly lead to changes in mortgage rates. Analysts are expecting to see a $45.4 billion trade deficit.

November's preliminary reading of the University of Michigan's Index of Consumer Sentiment will be released late Friday morning. This index measures consumer confidence, which gives us an indication of consumer willingness to spend. It is expected to show a reading of 83.0, up slightly from October's final reading of 82.6. That would be considered negative news for bonds because rising sentiment means consumers are more optimistic about their own financial situations and are more likely to make large purchases in the near future. Since consumer spending makes up over two-thirds of the U.S. economy, any related data is watched closely. The lower the reading, the better the news for mortgage shoppers.

Overall, it is difficult to predict just how active this week will be for mortgage rates. As expected, last week brought us quite a bit of volatility in rates when the markets were open for trading. This week should be much calmer as I don't believe the economic data on tap will be a catalyst for large swings in the major indexes or bond prices. I think the key will be the stock markets and Wednesday's Treasury auction. If they give us favorable results, mortgage rates will likely close the week lower than Monday's opening levels.