This Week’s Market Commentary_Feb 27, 2012

This week brings us the release of six economic reports to be concerned with in addition to some very important testimony from Fed Chairman Bernanke.

One of the reports is considered to be very important, but nearly all of the week’s releases have the potential to affect mortgage rates. There is nothing of relevance scheduled for release tomorrow or Friday, so the middle part of the week should be extremely active for mortgage rates.

The week’s first piece of data is January’s Durable Goods Orders data early Tuesday morning. It gives us an important measurement of manufacturing sector strength by tracking orders at U.S. factories for items expected to last three or more years. A larger decline than the 1.3% that is expected would be good news for the bond market and mortgage rates as it would point towards manufacturing sector weakness. This data is known to be quite volatile from month-to-month, so large swings are fairly normal. A small variance from forecasts would not be a big deal.

Tuesday also brings us the release of February’s Consumer Confidence Index (CCI) during late morning trading. This Conference Board index measures consumer confidence in their personal financial situations, giving us a measurement of consumer willingness to spend. If consumers are feeling good about their own financial situations, they are more apt to make large purchases in the near future. Since consumer spending makes up over two-thirds of the economy, related data is considered important in terms of gauging economic activity. It is expected to show an increase in confidence from 61.1 in January to 62.5 this month. A lower reading would be considered good news for bonds and mortgage rates since it would indicate consumers are less likely to make a large purchase in the near future.

The first of two revisions to the 4th Quarter GDP reading is scheduled for release Wednesday morning. Analysts’ forecasts currently call for an annual rate of growth of 2.8%, matching the initial estimate that was posted last month. It will be interesting to see where this figure falls and what its impact on the markets will be. Generally speaking, higher levels of activity are bad news for the bond market, while a sizable downward revision would be good news and could lead to improvements in mortgage pricing.

Fed Chairman Bernanke will deliver the Fed’s semi-annual testimony on the status of the economy late Wednesday and Thursday mornings. He will be speaking to the House Financial Services Committee Wednesday and the Senate Banking Committee Thursday morning. Market participants will watch his words very closely. He is required to deliver this testimony twice a year, which is considered to be of extreme importance to the financial markets. We almost always see the markets move as a result of what he says during this testimony. Look for him to address the unemployment and housing sectors along with Europe’s financial issues specifically and their impact on the overall economy. His testimony begins at 10:00 AM ET with a prepared statement then is followed by Q & A with committee members. I am expecting to see the markets fluctuate during this session, possibly affecting mortgage rates also.

The Fed Beige Book is the next report scheduled for release and it will be posted Wednesday afternoon. This report details economic activity throughout the country by Fed region. The Fed relies heavily on this data during their FOMC meetings, so look for a potential reaction during afternoon trading Wednesday. It probably will not cause a major sell off in the stock or bond markets, partly because Mr. Bernanke will have access to this info when testifying to Congress. However, it could give us some finer details that we won’t hear directly from Chairman Bernanke, so it is worth looking at.

January’s Personal Income and Outlays data will be released at 8:30 AM ET Thursday, which gives us an indication of consumer ability to spend and current spending habits. Current forecasts call for an increase in income of 0.4% while spending is expected to rise 0.3%. A larger than expected increase in spending would be bad news for the bond market and could drive mortgage rates higher because it would mean consumers spent more than thought. Since consumer spending makes up over two-thirds of the U.S. economy, the bond market does better when spending is slowing. Good news would be a smaller than expected increase, or better yet, a decline in both readings.

The Institute for Supply Management (ISM) will release their manufacturing index for February late Thursday morning. This index measures manufacturer sentiment and can have a pretty large impact on the financial and mortgage markets if it varies from forecasts. It is expected to show a small increase from January’s 54.1 to 54.5 this month. This is important because a reading above 50.0 means more surveyed manufacturers felt business improved during the month than those who felt it had worsened, meaning growth is likely in the manufacturing sector. If we see a weaker than expected reading, the bond market could rally. But, a higher than forecasted reading could lead to major selling in bonds, causing mortgage rates to rise Thursday morning.

Overall, look for a pretty active week for mortgage rates. Wednesday will likely be the biggest day of the week, but Tuesday may also bring noticeable movement in mortgage rates. The least important day will probably end up being tomorrow or Friday unless stocks stage a significant rally or sell-off. However, we may see movement in rates several days this week, so please maintain contact with your mortgage professional if still floating an interest rate.

Top Six Tax Benefits of Homeownership

Homeownership has many benefits, including tax deductions for those who qualify. Here are six of the top tax advantages of owning a home:

1. Write off the interest you paid on a mortgage up to $1 million, as long as the property is your main or secondary residence. This deduction really pays off during the first few years of owning a home, when interest accounts for most of your payment, also known as home acquisition debt.

2. Deduct the interest you pay on home equity loans of up to $100,000, so long as you are not subject to the alternating minimum tax or AMT (unless you use the loan for home improvement).

3. Deduct your state and local property taxes from your federal income taxes, where applicable.*

4. Deduct your home buying expenses, including loan origination fees, prorated interest on a new loan, or prorated property taxes.*

5. If you sold your home in 2011, you may not have to pay federal income taxes on the earnings from the sale, up to $250,000 for single filers and $500,000 for joint filers, as long as you used the home as a primary residence for at least two of the five years prior to selling. Some states, including California, offer this as well.

6. Rent your home out for up to 15 days and keep the income generated – it’s not taxable.

*Not an eligible deduction if you are subject to the AMT.

This Week’s Market Commentary_Feb. 14, 2012

There are six economic reports worth watching this week that are likely to affect mortgage rates in addition to the minutes from the last FOMC meeting. Some of the economic reports are very important to the financial and mortgage markets, meaning it will probably be another active week for mortgage rates.

There is no relevant economic data scheduled for tomorrow, so look for the stock markets to be the biggest influence on bond trading and mortgage rates. The Greek Parliament is debating the requirements for their bailout today, so any decision there will likely help drive trading and mortgage prices tomorrow morning.

The week’s first release is one of the highly important ones when the Commerce Department posts January’s Retail Sales data. This report is very important to the financial markets because it measures consumer spending. Since consumer spending makes up over two-thirds of the U.S. economy, any related data is watched quite closely. If Tuesday’s report reveals weaker than expected sales, the bond market should thrive and mortgage rates will fall since it would be a sign that the economy is not as strong as many had thought. However, a stronger reading than the 0.8% increase that is expected could lead to higher mortgage rates.

January’s Industrial Production data will be released mid-morning Wednesday. It gives us a measurement of manufacturing sector strength by tracking output at U.S. factories, mines and utilities and can have a moderate impact on the financial markets. Analysts are expecting to see a 0.6% increase in production from December to January. A smaller than expected rise in output would be good news and should push bond prices higher, lowering mortgage rates Wednesday.

Wednesday also brings us the release of the FOMC minutes. 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, therefore, any reaction will come during afternoon trading. These minutes may indicate if there is a consensus amongst Fed members or if there is disagreement about their actions or inactions. This release may lead to afternoon volatility Wednesday, or it may be a non-factor. However, the minutes do carry the potential to influence mortgage rates so they should be watched.

January’s Housing Starts will be posted early Thursday morning, giving us an indication of housing sector strength and mortgage credit demand. It usually does not affect rates unless the results vary greatly from forecasts. Current forecasts are calling for an increase in starts of new housing.

The Labor Department will post their Producer Price Index (PPI) for January early Thursday morning also. It measures inflationary pressures at the producer level of the economy and is considered to be one the two key measures of inflation we see each month. There are two portions of the report that analysts watch- the overall reading and the core data reading. The core data is more important to market participants because it excludes more volatile food and energy prices. It is expected to show an increase of 0.3% in the overall reading and a 0.1% rise in the core data. Good news for bonds would be a decline in both readings, particularly the core data as it would ease concerns about inflation that make long-term securities less attractive to investors.

The sister report to Thursday’s PPI will be posted early Friday morning when January’s Consumer Price Index (CPI) is released. The difference between the two is that the CPI measures inflationary pressures at the more important consumer level of the economy. With exception to maybe the Employment report, the CPI is the single most important report that we see each month. Its results can have a huge impact on the financial markets, especially on long-term securities such as mortgage-related bonds. It is expected to show a 0.3% increase in the overall index and a 0.2% rise in the more important core data. If we see weaker than expected readings, bond prices should rise and mortgage rates would likely fall.

Also Friday morning will be the release of the Leading Economic Indicators (LEI) for January. This Conference Board report attempts to predict economic activity over the next three to six months. It is expected to show a 0.5% increase, meaning that economic activity may rise in the near future. A smaller than expected rise would be good news for the bond market and mortgage rates, but the CPI draws much more attention than the LEI. Therefore, for this report to influence mortgage pricing, it will have to show a sizable variance from forecasts and the CPI will have to match estimates.

Overall, the most important day of the week will likely be Tuesday or Friday with the Retail Sales and CPI reports released. There is nothing of concern scheduled for tomorrow, so we can label it as the best candidate for the calmest day unless current events in Greece have an impact on the markets. In other words, be prepared for an active week in the markets and mortgage rates.

This Week’s Market Commentary_Feb. 6, 2012

There are only two pieces of monthly economic data scheduled for release this week. Neither of them is considered to be highly important, so we don’t have much to pin our hopes on or to be concerned with this week.

There are two Treasury auctions on the calendar that may influence mortgage rates the middle part of the week and the second part of Fed Chairman Bernanke’s testimony to Congress, but no important economic data.

Nothing of concern is due tomorrow, so look for the stock markets and news from Europe- particularly Greece, to drive the markets tomorrow. Fed Chairman Bernanke will speak to the Senate Budget Committee at 10:00 AM Tuesday. I don’t expect him to say anything different than he said last week to the House Budget Committee, but the Q&A portion of his appearance could lead to something new. It is worth watching, but it will probably not lead to a noticeable change in the markets or mortgage rates.

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 one as it will give us a better indication of demand of 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 likely result in upward afternoon revisions to mortgage rates.

With little monthly and no quarterly economic reports being posted, Thursday’s weekly release of unemployment figures may end up moving the markets and mortgage rates more than it traditionally does. The Labor Department is expected to announce that 370,000 new claims for unemployment benefits were filed last week, rising slightly from the previous week’s total. The higher the number of new claims for benefits, the better the news for the bond market and mortgage pricing as it would indicate weakness in the employment sector.

The first monthly report comes early Friday morning when December’s Goods and Services Trade Balance data will be posted. This report measures the U.S. trade deficit and can affect the value of the U.S. dollar versus other currencies, but it usually does not cause enough movement in bond prices to affect mortgage rates. It is expected to show a $48.2 billion trade deficit.

February’s preliminary reading to the University of Michigan’s Index of Consumer Sentiment will be released late Friday morning. This index measures consumer willingness to spend and usually has a moderate impact on the financial markets. If it shows an increase in consumer confidence, the stock markets may move higher and bond prices could fall. It is currently expected to come in at 74.0, down from January’s final reading of 75.0. That would indicate consumers were less optimistic about their own financial situations than last month and are less likely to make large purchases in the near future. Since consumer spending makes up over two-thirds of the U.S. economy, this would be considered good news for bonds and mortgage pricing.

Overall, despite being a fairly light week in terms of economic releases and relate events, it is still relatively crucial for the mortgage market. We saw the yield on the benchmark 10-year Treasury Note spike higher Friday as a result of the stronger than expected employment data. Stocks rallied as a result of that data, extending the 2012 stock rally that has pushed the Dow up over 5% and the Nasdaq up 11% year-to-date. Both indexes are at their highest levels since May 2008 and December 2000 respectively. This has me believing we are due to see a pullback in stocks fairly soon. If/when this happens, we should see funds shift back into bonds for safety, leading to lower mortgage rates. Keep in mind that this is more or less just speculation, but I am expecting to move to a less conservative approach regarding short-term mortgage rates in the near future.