Weekly Mortgage Commentary_February 25, 2013

The first piece of data is January’s New Home Sales report at 10:00 AM ET Tuesday morning. This is the least important report of the week, and is the sister report to last week’s Existing Home Sales data. They measure housing sector strength and mortgage credit demand, but usually do not have a significant impact on bond trading or mortgage rates unless they show significant surprises. This report is expected to show an increase in sales, hinting at strength in the new home portion of the housing sector. Ideally, the bond market would prefer to see housing sector weakness because it makes a broader economic recovery more difficult.

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 58.6 in January to 62.0 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.

Fed Chairman Bernanke will deliver the Fed’s semi-annual testimony on the status of the economy late Tuesday and Wednesday mornings. He will be speaking to the Senate Banking Committee Tuesday morning and the House Financial Services Committee Wednesday. 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 our budget stalemate 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 greatly Tuesday morning, possibly affecting mortgage rates also. The first day of testimony almost always causes the most volatility because the prepared statement made by the Chairman on the second day usually differs little from that of the first day.

January’s Durable Goods Orders data will be released early Wednesday morning. This report 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. Products such as electronics, refrigerators and autos are examples of these big-ticket items. A larger decline than the 4.0% 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 cause much concern or joy in the markets.

The first of two revisions to the 4th Quarter GDP reading is scheduled for release Thursday morning. Analysts’ forecasts currently call for an annual rate of growth of 0.5%, up from the initial estimate of a 0.1% decline 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 no change or a downward revision would be good news for bonds and could lead to improvements in mortgage pricing Thursday.

Friday has three economic reports scheduled. January’s Personal Income and Outlays data will be released at 8:30 AM ET, which gives us an indication of consumer ability to spend and current spending habits. Current forecasts call for a decline in income of 2.4% while spending is expected to rise 0.2%. The expected sizable decline in income is a result of the 2.6% spike we saw last month in December’s data that was attributed to Fiscal Cliff worries. Many large companies paid dividends and bonuses in December instead of January as they traditionally do in case the Fiscal Cliff issue did not get resolved. This allowed those payments to be taxed at the expected lower rates of 2012 instead of the 2013 rates that would have kicked in had there been no resolution. This means that we will see income fall sharply from December’s inflated level. Lower levels of income men consumers have less money to spend. And weaker levels of consumer spending helps limit overall economic growth, making long-term securities, such as mortgage-related bonds, more attractive to investors.

The University of Michigan’s revision to their Index of Consumer Sentiment for February will be announced just before 10:00 AM ET Friday. Current forecasts show this index unchanged from its preliminary estimate of 76.3. This index is fairly important because it helps us measure consumer confidence that translates into consumer willingness to spend, but is not considered to be a major market mover. This means it will probably not have a significant impact on mortgage rates, especially with other important data being released Friday morning.

The Institute for Supply Management (ISM) will release their manufacturing index for February late Friday 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 decline from January’s 53.1 to 52.4 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 Friday morning. One of the reasons this data is considered so important is the fact that it is usually the first monthly report posted that covers the preceding month. Its posting data is the first business day of the month, allowing for a current snapshot of economic conditions.
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 Notes Tuesday and 7-year Notes on Wednesday. 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 to mortgage rates. However, strong sales usually make bonds more attractive to investors and bring more funds into bonds. The buying of bonds that follows usually translates into lower mortgage rates.

Overall, I am expecting Tuesday to be the most important day with a couple of economic reports, the first relevant Treasury auction of the week and the first day of Chairman Bernanke’s testimony all scheduled. Friday’s data is considered highly important, so we may see a fair amount of movement in the markets and mortgage pricing that day also. We will also be watching progress on the automatic budget cuts that are scheduled to take effect Friday (March 1st) and the major stock indexes (Dow at 14,000) for direction of mortgage rates. There is little doubt that this will be an extremely active week in the markets and likely mortgage rates too. Therefore, please proceed cautiously if still floating an interest rate and closing in the near future.

Weekly Mortgage Commentary_February 11, 2013

This week brings us the release of only three pieces of monthly economic data that is relevant to mortgage rates in addition to two Treasury auctions. One of the economic reports is considered highly important to the markets, but the others are not likely to be market movers. We still could see a fair amount of movement in mortgage rates though, especially if stocks make a sizable move upward or downward.

Nothing of concern is due Monday or Tuesday morning, leaving bond trading to be driven by the stock markets the first part of the week. If the major stock indexes move higher, we will probably see funds move away from bonds and into stocks. This would lead to higher mortgage rates as bond prices and yields move in opposite directions. Mortgage rates tend to follow bond yields, so we prefer to see bond prices go up, pushing rates lower.

The week’s first release is one of the more important ones we get each month. The Commerce Department will post January’s Retail Sales data early Wednesday morning. 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 Wednesday’s report reveals weaker than expected retail-level 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 0.1% increase that is expected could lead to higher mortgage rates Wednesday.

January’s Industrial Production data will be released mid-morning Friday. 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 0.2% increase in production from December to January. A decline in output would be good news and should push bond prices higher, lowering mortgage rates Friday.

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 also 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 73.5, down slightly from January’s final reading of 73.8. That would indicate consumers were a little less optimistic about their own financial situations than last month and are less likely to make large a purchase in the near future. Since consumer spending makes up over two-thirds of the U.S. economy, this would be considered slightly favorable news for bonds and mortgage pricing.

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 an indication for 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.

Overall, I believe we will see the most movement in rates the middle part of the week. There is a small improvement waiting for Monday’s open if your lender did not improve pricing Friday afternoon when the bond market strengthened during late trading. The Dow closed just under 14,000 Friday, so we will also be watching it for an indication of bond movement. I believe that failure to break above that level could mean a downward leg in stocks that would boost bond prices and improve mortgage rates. I see Wednesday as the likely candidate for the most important day and Tuesday being the least active, assuming stocks remain calm most of the week. However, despite it being a relatively light week in terms of economic releases, I still recommend maintaining contact with your mortgage professional of still floating an interest rate.

Weekly Mortgage Commentary_February 3, 2013

 

There are only three pieces of monthly economic data scheduled for release this week. None of them are considered to be highly important, so we don’t have much to pin our hopes on or to be concerned with this week. This could help give the mortgage market a chance to breathe a little. While that would normally not be something to look forward to, it should be welcomed news following the beating mortgage rates have taken over the past couple weeks.

December’s Factory Orders data is the first piece of data, scheduled to be posted at 10:00 AM ET Monday. It is similar to last week’s Durable Goods Orders release in giving us a measurement of manufacturing sector strength, but this data includes new orders for both durable and non-durable goods. It is not one of the more important reports we get each month, however, it can influence mortgage pricing if it varies greatly from forecasts. Analysts are expecting a 2.4% increase in new orders, indicating manufacturing sector strength. The bond market would like to see a much smaller increase, meaning that manufacturing activity was not as strong as many had thought.
Employee Productivity and Costs data for the 4th quarter will be released early Thursday morning. It can cause some movement in the bond market, but should have a minimal impact on mortgage pricing. If the productivity reading varies greatly from analysts’ forecasts of a 1.2% decline, we may see some movement in mortgage rates. Higher levels of worker productivity is good news for the bond market because it allows the economy to expand while keeping inflation subdued. On the other hand, bond traders would prefer to see the labor costs reading decline to limit wage inflation concerns.
The third and final report of the week is December’s Goods and Services Trade Balance data early Friday morning. 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 $45.4 billion trade deficit.
Overall, I am expecting a much calmer week in the mortgage market than we have seen the past couple. With little economic data to drive bond trading, look for the stock markets to play a major role in bond movement and mortgage rate changes. If the major stock indexes extend their recent rally that closed the Dow above 14,000 Friday for the first time since Oct 2007, we could see bond prices fall and their yields move further above 2.00%. Since mortgage rates tend to follow bond yields, this would be bad news for mortgage shoppers. However, if stocks fall from current levels, we should see bond prices rise and mortgage rates move lower this week.

Weekly Mortgage Commentary_January 14, 2013

This week beings us the release of seven economic reports that are relevant to mortgage rates, with some of the data considered to be highly important to the financial and mortgage markets. There is nothing scheduled for release during trading hours that may influence mortgage rates. However, Fed Chairman Bernanke will speak at the University of Michigan at 4:30 PM ET. The topic will be the economy and monetary policy, so there is a decent possibility of his words affecting the markets. But since the event is considered after-hours, we won’t be able to see whatever is said influence mortgage pricing until Tuesday morning.

The first economic reports of the week will be posted early Tuesday morning. The Commerce Department will release December’s Retail Sales data at 8:30 AM ET. This Commerce Department report measures consumer spending by tracking sales at retail level establishments in the U.S. Since consumer spending makes up over two-thirds of the U.S. economy, any related data is watched closely. Current forecasts are calling for an increase in sales of approximately 0.3%. A smaller than expected increase in sales would be good news for bonds and mortgage rates because it would hint at weaker than thought economic growth.

Tuesday’s second report is the Labor Department’s Producer Price Index (PPI), also at 8:30 AM ET. The PPI is important to the markets and mortgage rates because it measures inflationary pressures at the producer level of the economy. Analysts are expecting to see no change in the overall reading and a 0.2% increase in the more important core reading that excludes volatile food and energy prices. A larger than expected increase in the core reading could mean higher mortgage rates Tuesday since inflation is the number one nemesis of the bond market. It erodes the value of a bond’s future fixed interest payments, making them less attractive to investors. Accordingly, they are sold at a discount to offset the drop in value, which drives their yields higher. And since mortgage rates follow bond yields, rising inflation usually translates into higher interest rates for borrowers.

Wednesday also has multiple reports scheduled for release. The first and most important is December’s Consumer Price Index (CPI) at 8:30 AM. This is one of the most important monthly reports that we see each month since it measures inflationary pressures at the consumer level of the economy. As with the PPI, there are two readings in the release. The overall index is expected to remain unchanged while the core data is expected to increase 0.1%. Weaker than expected readings would be favorable news and should lead to bond strength and lower mortgage rates Wednesday morning.

December’s Industrial Production report is also on Wednesday’s agenda with a release time of 9:15 AM ET. This data measures output at U.S. factories, mines and utilities, giving us an indication of manufacturing sector strength or weakness. Current forecasts are calling for an increase in production of 0.2% from November’s level. A weaker reading would be considered good news for bonds and could help lower mortgage rates, but the CPI is by far the more important data for the bond market and will have the biggest impact on that day’s mortgage pricing.

Lastly for Wednesday, the Federal Reserve’s Beige Book will be posted at 2:00 PM ET. This report is named simply after the color of its cover and details economic conditions throughout the U.S. by Fed region. Since the Fed relies heavily on it during their FOMC meetings, its results can have a fairly big impact on the financial markets and mortgage rates if it reveals any surprises, particularly regarding inflation, unemployment or future hiring. Any reaction to the report though will come during afternoon trading.

Thursday’s sole monthly data is December’s Housing Starts at 8:30 AM. It helps us measure housing sector strength and future mortgage credit demand by tracking construction starts of new homes. It is not considered to be one of the more important releases each month, so I don’t see it causing much movement in mortgage rates Thursday but does carry the potential to affect trading and rates if it shows a significant surprise.

The final report of the week is January’s preliminary reading to the University of Michigan’s Index of Consumer Sentiment. This index measures consumer willingness to spend and can usually have enough of an impact on the financial markets to slightly change mortgage rates. If consumers feel better about their own financial situations, they are more apt to make a large purchase in the near future, fueling economic activity. Good news would be a reading weaker than the 75.0 that is expected.

Overall, Tuesday or Wednesday will probably be the most active day for mortgage rates with some key economic data being posted both days. The least active day will probably be Monday, but Thursday also has little to be too concerned with. But the stock markets can be a big influence on bond trading and mortgage pricing any day, so maintaining contact with your mortgage professional this week is highly recommended if still floating an interest rate.

Weekly Mortgage Commentary_January 7, 2013

This week brings us little to drive bond trading and mortgage rates. There is only one monthly economic report scheduled, which is considered to be of low importance to the markets anyhow. That would give the appearance that we are in for a quiet week for mortgage rates, but I don’t believe this will be the case. There probably will be less activity and movement than we saw last week. However, I suspect that we will still end up seeing a fair amount of movement in rates between Monday’s opening and Friday’s closing.

There is nothing of importance scheduled to be posted Monday or Tuesday. This means that the stock markets will probably dictate bond direction there first part of the week. If the major stock indexes rally again, they will pressure bonds leading to higher mortgage rates. However, stock weakness should allow bond prices to rise and mortgage rates to improve.

Besides the sole monthly economic report late in the week, we also have two Treasury auctions that have the potential to influence mortgage pricing. They will be held 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 for 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 revisions to mortgage rates.

Also worth noting is some news from overseas before the markets open Thursday. The Bank of England’s monetary policy announcement (equivalent to our FOMC) will be released at 7:15 AM ET while the European Central Bank will announce at 7:45 AM ET. The ECB will draw the most attention as global investors are extremely concerned about the Eurozone and what actions will be taken to shore up some of its’ member’s finances. We should be on alert for a reaction in the bond and mortgage markets if they yield any surprises.

November’s Goods and Services Trade Balance will be posted early Friday morning. It measures the size of the U.S. trade deficit and is expected to show a $41.8 billion deficit. This data usually does not directly affect mortgage rates, but it does influence the value of the U.S. dollar versus other currencies. A stronger dollar makes U.S. securities more attractive to international investors because they are worth more when sold and converted to the investor’s domestic currency. But unless we see a significant variance from forecasts, I don’t believe this data will lead to a change in mortgage rates Friday.

Overall, it would be easy to say this will be a calm week for the mortgage markets due to the lack of important or highly influential events scheduled. I would not be surprised to see stocks move lower for the week, helping to push funds back into bonds. We saw some improvement in bonds late Friday, so if your lender did not improve rates during afternoon trading, you have an improvement of approximately .125 – .250 of a discount point waiting at Monday’s opening. That could shrink or get larger depending on how the markets perform during early morning trading, but there is a decent possibility of starting the week off in the right direction. With the benchmark 10-year Treasury Note currently yielding 1.90%, I believe there is more likelihood of seeing bonds improve (pushing yields and mortgage rates lower) in the immediate future than seeing them move lower (raising yields and mortgage pricing). Of course, this is just speculation and only an opinion, so please maintain contact with your mortgage professional if still floating an interest rate.

Year End Tax Tips for 2012

What do you need to know about your taxes before December 31st?  There are a number of tax changes happening in 2013, and you should know when you want certain income to be taxed.  Finding a good tax professional will be more expensive right now since it’s the holidays and it would be a rush job, but it may save you quite a bit come April 15th.

Ok, so what can you do personally?

From Year End Tax Tips on about.com:

There are basic year-end tax planning techniques that can be utilized to successfully manage income taxes. Year-end tax planning techniques include:

• Accelerating or deferring income.
• Accelerating or deferring expenses that can be used for tax deduction or tax credits.
• Taking advantage of any tax provisions that are scheduled to expire at the end of 2012.

All of these strategies have one factor in common: the timing of income and expenses. Accelerating means earning additional income or incurring additional tax-deductible expenses in 2012 rather than in 2013. Deferring means pushing additional income or additional deductions to 2013 rather than 2012. To the extent that income and expenses can be moved from one year to the next, these tactics can be utilized to optimize a person’s tax liabilities between the years 2012 and 2013. Year-end planning is about finding the right year in which to earn additional income or to spend money on more tax deductions. For the most part, income earned in 2012 is taxed in 2012, and deductions incurred in 2012 are deductible in 2012.

And here are tips for Year End Tax Planning for Investors on about.com:

• Check Your Default Cost Basis Reporting Settings in Your Brokerage Account
• Consider Re-Balancing Your Portfolio By Tax Type
• Selling off Losing Investments
• Sell off Winning Investments
• Pairing Losses with Gains
• Deferring Losses until Next Year
• Deferring Gains until Next Year
• Tax Planning with Capital Loss Carryovers

Additional Resources:

1. IRS Tax Tips
2. Kiplinger Slideshow of Recommendations
3. 8 Tax Tips from TurboTax
4. H & R Block End of Year Tax Tips

Do some planning and see how you can save yourself some money come April 15.

Do you wait until the last minute or do you start planning your taxes right away?

Weekly Mortgage Commentary_December 17, 2012

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This week brings us the release of seven monthly or quarterly economic reports in addition to two semi-relevant Treasury auctions. None of the releases are considered to be highly important to the markets and mortgage rates, but several of them do have the potential to cause some movement in rates. The more important news comes later in the week. Therefore, we may see more movement in mortgage pricing as the week progresses.

There is nothing of economic relevance scheduled for release Monday or Tuesday. However, this week does have Treasury auctions scheduled the first three days. The two that are most likely to influence mortgage rates are Tuesday’s 5-year and Wednesday’s 7-year Note sales. If those sales are met with a strong demand, particularly Wednesday’s auction, bond prices may rise during afternoon trading. This could lead to improvements to mortgage rates shortly after the results of the sales are posted at 1:00 PM ET each day. But a lackluster investor demand may create bond selling and upward revisions to mortgage rates Tuesday and/or Wednesday afternoon.

Wednesday’s only data is November’s Housing Starts, but it is the week’s least important data. I don’t see it causing much movement in mortgage rates unless it shows a huge variance from expectations. It is expected to show a decline in construction starts of new homes, hinting at a weakening housing sector last month. Generally speaking, an increase in new starts would be bad news for bonds and mortgage pricing, but unless there is a significant surprise it will likely have little impact on Wednesday’s mortgage rates.

Thursday brings us the release of three reports, with the first being the final revision to the 3rd Quarter Gross Domestic Product (GDP). I don’t think this data will have an impact on mortgage rates unless it varies greatly from its expected reading. Last month’s first revision showed that the economy expanded at a 2.7% annual pace during the quarter and this month’s final revision is expected to show no change from that level. A revision higher than the 2.7% rate that is expected would be considered bad news for bonds. But since this data is quite aged at this point and 4th quarter numbers will be posted next month, I don’t think it will have much of an impact on mortgage rates Thursday.

The second report of the day comes at 10:00 AM ET when November’s Existing Home Sales figures will be posted. This release will come from the National Association of Realtors, giving us a measurement of housing sector strength and mortgage credit demand. It is expected to show an increase in sales, indicating housing sector growth. A decline in sales would be considered positive for bonds and mortgage rates because a softening housing market makes a broader economic recovery more difficult. But unless the actual readings vary greatly from forecasts, the results will probably have little or no impact on mortgage rates.

The Conference Board will release their Leading Economic Indicators (LEI) for the month of November late Thursday morning also. This release attempts to measure or predict economic activity over the next three to six months. It is expected to show a small decline, meaning that it predicts slowing economic growth over the next several months. This probably will not have much influence on bond prices or affect mortgage rates unless it shows a much stronger reading than the 0.2% decrease that is forecasted. The weaker the reading, the better the news for bonds and mortgage pricing.

The final three economic reports of the week come Friday morning and they are the more important ones scheduled. The first is November’s Personal Income and Outlays data at 8:30 AM ET. It will give us an important measurement of consumer ability to spend and current spending habits. Since consumer spending makes up over two-thirds of the U.S. economy, any related data usually has a noticeable impact on the financial markets and mortgage rates. Current forecasts are calling for a 0.3% increase in income and a 0.3% increase in spending. If this report reveals weaker than expected readings, we should see the bond market improve and mortgage rates drop slightly Friday morning.

November’s Durable Goods Orders is the second report, also being posted early Friday morning. This data gives us an important measurement of manufacturing sector strength by tracking orders for big-ticket items or products that are expected to last at least three years. Analysts are expecting the report to show a 0.2% rise in new orders. A decline in new orders would indicate that the manufacturing sector was weaker than many had thought. This would be good news for the bond market and should drive mortgage rates lower. However, a larger jump in orders could lead to mortgage rates moving higher early Friday morning. This data is known to be quite volatile from month-to-month though, so it is not unusual to see large headline numbers on this report.

The last economic report will be released just before 10:00 AM ET when the revised University of Michigan Index of Consumer Sentiment for December is posted. Current forecasts are calling for a small downward revision from the preliminary reading of 74.5. This is fairly important because rising consumer confidence indicates that consumers may be more apt to make large purchases in the near future. A reading above the 74.0 that is forecasted would be negative for bonds and mortgage rates.

Overall, I am expecting to see little movement in the markets and mortgage rates the first couple days. As the week progresses and we get to the economic releases, we should see more activity in the markets and changes to mortgage pricing. The least important day for mortgage rates will likely be Monday unless something drastic happens overnight. We will probably see the most movement in rates Friday, but Thursday’s economic data can also move mortgage pricing noticeably. The Fiscal Cliff issue will also be a topic of discussion and trading in the markets as we get closer to the deadline. Therefore, please maintain contact with your mortgage professional if still floating an interest rate, especially the latter part of the week.