This Week’s Market Commentary_March 26, 2012

Monday’s bond market has opened in negative territory following early stock strength. The major stock indexes are starting the week off with gains of 112 points in the Dow and 26 points in the Nasdaq. The bond market is currently down 6/32, but we may still see a slight improvement in this morning’s mortgage pricing due mostly to strength late Friday.

There is no relevant economic data scheduled today, the only day of the week that there isn’t. Fed Chairman Bernanke had a speech early this morning, which did draw a little attention. However, his words weren’t new or surprising as they were a reminder of his current stance on the employment sector. He referenced the improving job market but reiterated that it still remains weak. That is more or less neutral for the bond market and mortgage rates.

The rest of the week has five economic reports scheduled reports that are considered relevant to mortgage rates in addition to two Treasury auctions that have the potential to swing bond trading enough to change mortgage rates. The first economic report come late tomorrow morning March’s Consumer Confidence Index (CCI) will be released. This index gives us an indication of consumers’ willingness to spend. Bond traders watch this data closely because consumer spending makes up over two-thirds of our economy.

If this report shows that confidence in their own financial situations is falling, it would indicate that consumers are less apt to make a large purchase in the near future. If it reveals that confidence looks to be growing, we may see bond traders sell as economic growth may rise, pushing mortgage rates higher tomorrow morning. It is expected to show a decline from February’s 70.8 reading to 70.1 for March. The lower the reading, the better the news for bonds and mortgage rates.

Overall, I expect to see the most movement in rates either tomorrow or Wednesday. Friday could also be a little active in terms of mortgage pricing. In general, it will probably be a pretty active week for rates. Accordingly, it would be prudent to maintain contact with your mortgage professional if still floating an interest rate. We saw some nice improvements last week, but not enough buying to convince me that rates are more likely to move lower than remain the same or move higher in the next week or so. Therefore, I am still holding the cautious approach towards rates for immediate term closings.

This Week’s Market Commentary_March 19, 2012

This week brings us the release of four monthly reports for the bond market to digest, but none of them are considered to be highly important. Not that it necessarily matters of recent. As we saw last week, favorable results from what is thought to be influential economic data, apparently isn’t enough to expect bond strength and improvements in mortgage rates.

Simply put, last week was just ugly for mortgage shoppers with no clear justification for the bond sell-off and spike in mortgage pricing. I would like to say that this week is a good opportunity to recover some of those losses. Unfortunately, I don’t see anything scheduled that is likely to be that catalyst.

There is nothing of importance scheduled for release tomorrow. We saw some strength in mortgage bonds late Friday, so if your lender did not improve pricing during afternoon hours, you have an improvement of approximately .125 – .250 of a discount point awaiting tomorrow’s rate sheet. That is assuming that we don’t see a huge rally in stocks during early trading. I would like to say that the worst of the bond sell-off is well behind us, but we should proceed cautiously until there is some stabilization in the market. The fact that stocks were not able to extend their rally the latter part of the week also tells me that the sell-off in bonds was a knee-jerk reaction or some type of correction that is not likely to continue moving forward. Accordingly, I am cautiously optimistic towards mortgage rates at the moment.

The general theme of the core of this week’s economic news is housing. Three of the four reports that are scheduled give us different insights into the housing sector. They begin early Tuesday morning when February’s Housing Starts will be posted. This report tracks construction starts of new housing. It doesn’t usually cause much movement in mortgage rates and is considered one of the less important reports we see each month. It is expected to show an increase of less than 1% in housing starts, indicating slight growth in the housing sector. Good news for the bond market and mortgage rates would be a sizable decline in new starts. Also Tuesday is the first of four lectures that Fed Chairman Bernanke will make at the George Washington School of Business. The second is Thursday while the remaining two are scheduled for next week. I doubt they will lead to movement in the markets or changes to mortgage rates, but we will be watching the first one at 12:45 PM Tuesday for any impact his words may have.

February’s Existing Home Sales will be posted late Wednesday morning by the National Association of Realtors. It will also give us a measurement of housing sector strength and mortgage credit demand, but is the most likely of the three to influence mortgage rates. It is expected to reveal an increase in home resales, meaning the housing sector strengthened last month. Ideally, bond traders would prefer to see a decline in sales, pointing towards a still weakening housing sector. However, a small increase is expected, so it shouldn’t cause much alarm in the bond and mortgage markets. Bad news would be a sizable increase in sales, indicating that the housing sector is gaining momentum. That could be troublesome for the bond market and mortgage rates because housing and unemployment were the two biggest hurdles the economy had to overcome. Recent reports have some traders much more optimistic about the employment sector, so overwhelmingly strong housing news could lead to another rise in mortgage rates.

The Conference Board will post its Leading Economic Indicators (LEI) for February late Thursday morning. This index attempts to measure economic activity over the next three to six months. It is considered to be moderately important, but likely will not have a significant impact on mortgage rates. Current forecasts are calling for a 0.6% increase, meaning it is predicting that economic activity will likely expand fairly rapidly in the coming weeks. A smaller than forecasted rise, or better yet a decline would be considered good news for the bond market and mortgage rates.

Friday’s only news is the sister release to Wednesday’s Existing Home Sales report. The Commerce Department will give us February’s New Home Sales figures late Friday morning. They are expected to announce little change from January’s sales level of newly constructed homes. This report tracks a much smaller percentage of home sales than Wednesday’s report covers, so it should have a much weaker influence on the markets and mortgage pricing.

Overall, it is difficult to label one particular day as the most important of the week. The single most important report will likely be Wednesday’s Existing Home Sales, but none of the week’s data is known to be a major market mover. If the stock markets move lower, we could see gains in bonds and improvements in mortgage rates. But, if stocks move higher, pressure in bonds is possible, leading to higher mortgage pricing again. Therefore, I still recommend proceeding with caution if you are floating an interest rate, at least until some more time has passed since last week’s silliness.

This Week’s Market Commentary_March 12, 2012

This week brings us the release of five relevant economic reports along with an FOMC meeting and two Treasury auctions for the markets to digest. A couple of the week’s reports are considered highly important, as is of course the FOMC meeting. There is nothing of relevance to mortgage rates being released or taking place tomorrow, so all of the week’s events are scheduled over four days.

The first thing on the calendar will come from the Commerce Department early Tuesday morning when they post February’s Retail Sales data. This data is extremely important to the financial markets because it measures consumer spending. Since consumer spending makes up over two-thirds of the U.S. economy, data that is related usually has a big impact on the markets. This month’s report is expected to show an increase in sales of approximately 1.0%. If it reveals a larger than expected increase, the bond market will likely fall and mortgage rates will move higher as it would indicate a stronger level of economic growth than many had thought. If it reveals a much smaller than expected increase, I expect to see bond prices rise and mortgage rates improve Tuesday morning.

Also Tuesday is the Federal Open Market Committee (FOMC) meeting. This is a single-day meeting that will adjourn at 2:15 PM ET. It is widely believed that the Fed will make no change to key short-term interest rates at this meeting, but the post-meeting statement will be watched closely for any change in their feelings about the economy or any other moves they may make, such as QE3. Generally speaking, the bond market wants to hear that inflation is not an immediate concern and that key rates will be kept at current levels for a long time. An announcement of another round of Quantitative Easing to help keep long-term interest rates low could fuel a bond rally.

There are two Treasury auctions this week that could potentially affect mortgage rates. The first is the 10-year Treasury Note auction Tuesday and the 30-year bond sale will be held Wednesday. Results of both sales will be posted at 1:00 PM ET on the sale days. If investor demand was high, we may see bonds rally during afternoon trading as it would indicate that investors still have an appetite for longer-term securities. However, weak demand in the sale could lead to selling and an increase in mortgage rates.

Wednesday also has a speaking engagement by Fed Chairman Bernanke. He will be speaking to the Independent Community Bankers Association in Nashville at 9:00 AM ET. I don’t believe he will say anything that will be a market mover, especially the morning after the FOMC meeting. However, market participants always watch his words closely so any surprises will have an impact on the markets and possibly mortgage pricing.

The Labor Department will post February’s Producer Price Index (PPI) early Thursday morning. This important index measures inflationary pressures at the producer level of the economy. There are two portions of the index- the overall reading and the core data. The core data is more important and watched more closely because it excludes more volatile food and energy (including gasoline) prices. If the index shows a large increase, inflation concerns will rise, making long-term investments such as mortgage-related bonds less attractive to investors. This would lead to higher mortgage rates Thursday morning. Current forecasts are calling for a 0.5% increase in the overall reading and a 0.2% increase in the core data.

Friday has the remaining three economic reports scheduled. February’s Consumer Price Index (CPI) will be released early Friday morning, which measures inflationary pressures at the very important consumer level of the economy. Its results can definitely have a huge impact on the financial markets, especially long-term securities such as mortgage-related bonds. It is expected to show a 0.4% 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 Friday.

Friday’s next report will come mid-morning when February’s Industrial Production report is posted. This report measures manufacturing sector strength by tracking output at U.S. factories, mines and utilities. It is expected to show a 0.5% increase from January’s level. A decline would be considered extremely favorable news for bonds and mortgage rates because it would indicate manufacturing sector weakness and a broader economic recovery is more difficult if manufacturing activity is slipping.

The week’s final piece of data is the University of Michigan’s Index of Consumer Sentiment for March just before 10:00 AM ET Friday. This index gives us a measurement of consumer willingness to spend. If confidence is rising, then consumers are more apt to make large purchases. This helps fuel consumer spending and economic growth. A drop in confidence will probably hurt the stock markets and boost bond prices, leading to lower mortgage rates, assuming the CPI matches forecasts. Bad news for bonds and mortgage rates would be rising confidence. It is expected to show a reading of 76.0, which would be an increase from February’s final reading 75.3.

Overall, look for Tuesday or Friday to be the most important day of the week due to the importance of those day’s reports and the FOMC meeting. Tomorrow will likely be the least active day for mortgage rates, but we could see plenty of movement in the markets and mortgage pricing several days this week. Therefore, please be attentive to the markets and 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_March 5, 2012

This week has four government-compiled economic reports for the markets to digest. Only one is considered to be highly important, but it is a big one. The rest of the reports are moderately important to the markets, meaning they have the potential to affect mortgage rates but usually don’t cause a noticeable change. The most important data comes the matter part of the week, but sizable moves in stocks can impact bond trading and mortgage rates any day.

The week’s first data comes tomorrow with the release of January’s Factory Orders during late morning hours, which will give us a measurement of manufacturing sector strength. This data is similar to last week’s Durable Goods, except this report covers orders for both durable and non-durable goods. Current forecasts are calling for a drop in new orders of approximately 1.9%. A larger than expected drop would be good news for the bond market and could lead to an improvement in mortgage rates since it would point towards economic weakness.

There is nothing of relevance scheduled for Tuesday, but Wednesday has a couple of releases that are considered moderately important. The first is the revised Productivity index for the 4th Quarter of last year. The preliminary reading posted last month showed an annual growth rate of 0.7% in worker output. Analysts are expecting to see an upward revision of 0.2% to last month’s initial reading. Employee productivity is watched fairly closely because a higher level of output per hour is believed to mean that the economy can expand without inflation concerns. However, since this data is quite aged now, it likely will have little impact on Wednesday’s mortgage rates unless it shows a significant change.

Wednesday also has a couple of private sector employment-related reports due to be posted. The biggest one comes from payroll processor ADP who will announce their change in payrolls processed last month. Since it is not a government agency report, it isn’t considered to be highly important, but as with any employment-related data, it does draw some attention. This is especially true for this report because it is posted just before monthly employment figures are released by the Labor Department.

Thursday has nothing to be concerned with but Friday is a different story. The biggest news of the week comes early Friday morning when one of the single most important monthly reports we see will be posted. The Labor Department will release February’s Employment report at 8:30 AM ET Friday. Some of the important portions of the report will give us the unemployment rate, number of new jobs added or lost and the average hourly earnings reading. The best combination for the bond market and mortgage rates would be an increase in the unemployment rate, a much smaller increase in payrolls than expected and little or no increase in earnings. Current forecasts are calling for no change in the unemployment rate of 8.3% and approximately 207,000 new jobs added to the economy. Stronger than expected readings will likely fuel a stock market rally and selling bonds that would cause a sizable upward revision to mortgage rates. On the other hand, disappointing numbers would raise concerns about the economy’s ability to continue to grow at its current pace that would have an opposite impact on the markets and mortgage pricing.

January’s Goods and Services Trade Balance report will also be released early Friday morning, but it will likely draw little interest from market participants. It will give us the size of the U.S. trade deficit, but often does not directly impact mortgage rates and is the week’s least important piece of news. Current forecasts are calling for a $48.1 billion trade deficit during January, but we will need to see a large variance from this estimate and little surprise in the employment figures for this news to influence bond trading enough to affect mortgage pricing. It is highly likely that this report will be a non-factor in Friday’s pricing.

Overall, look for a fairly active week in the markets and mortgage rates. I suspect there will be some optimism leading up to Friday’s Employment report, which could lead to support in stocks and pressure in bonds as we get closer to Friday. That day is undoubtedly the biggest of the week and we can label Tuesday as the least important. Please be careful this week if still floating an interest rate, especially the latter part of the week.