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.

Weekly Mortgage Commentary_November 19, 2012

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.

Weekly Mortgage Commentary_November 12, 2012

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. Because the bond market is closed Monday, there will be no update to this report.

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.

Weekly Mortgage Commentary_11-5-2012

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.