Here is the Mortgage Market Update for the week of December 24, 2007 brought to you by Larry Iest of Hemet Mortgage.
I WOULD LIKE TO WISH ALL OF YOU, YOUR FAMILY AND FRIENDS THE VERY BEST THIS HOLIDAY SEASON.
LAST WEEK: Recap
Last week was a very tough week for mortgage rates as the ended the week lower than when the week began. The week began with some nice gains in the bond market which helps mortgage rates improve. As the week progressed those gains were all given back. Thursday seamed to be the high point for mortgage rates and I switch from a floating bias to a locking bias for my clients. Thursday and Friday saw a precipitous fall in the bond market which is continuing today. This fall was fueled by inflation worries (what a shock). Thursday the worries began of the pending inflation data that was to be released Friday morning. The worries were warranted as the PCE data released Friday morning did reveal increasing inflation. The Core PCE, the Fed's favorite measure of inflation, increased to a year-over-year rate of 2.2%. This rate is now outside the Federal Reserve's comfort zone of 1-2%. This increase underscores the Feds unpopular decision to only cut the Fed Funds Rate by .25% at the last meeting and could possible eliminate a cut a the January meeting. Another interesting component in Friday's reports was a negative savings rate. Personal Spending surged to a 1.1% gain which shows the resiliency of the U.S. consumer but it seams the increase in spending was at the expense of personal savings.
Legislative Update:
December 20th President Bush signed the Mortgage Forgiveness Debt Relief Act into law. This has three main points.
Elimination of the "phantom tax" on foreclosures, short sales or other discharges of debt on a primary residence. The new law eliminates this "phantom tax", and forgiven debt is no longer treated as taxable income to the borrower as long as certain requirements are met, such as the discharged mortgage balance must be on the taxpayer's principal residence.
The tax deduction for mortgage insurance premiums is now extended until December 31, 2010 instead of expiring at the end of 2007. The same rules apply as before in terms of the income limitations etc.
The capital gains exclusion is now $500,000 instead of $250,000 for an unmarried individual who sells their primary residence within 2 years of the time their spouse has died. This new guideline applies to sales after December 31, 2007, and provides relief for widows and widowers by giving them a 2 year window from the time their spouse has died to sell their home and receive the $500,000 exclusion. Of course, the same rules apply as before, where the individual(s) need to have lived in the home as their primary residence for 2 out of the last 5 years
AMT Relief Passed by Congress (FINALLY)!
After much drama and a few rounds of chicken between the House and Senate, Congress FINALLY passed AMT relief on Wednesday, December 19. The President has indicated a strong willingness to sign this bill into law, and it is currently awaiting his signature. Under this one year patch, approx. 20 million taxpayers have escaped the clutches of the AMT. However, approx. 3.5 million taxpayers are still expected to be subject to the AMT.
THIS WEEK: Looking Ahead
This holiday shortened week has a small economic calendar which will be a relief after all of last week's fireworks. The markets will close early Monday and remain closed Tuesday in observance of the Christmas holiday. We have no high impact reports scheduled for release this week. The trading volume is expected to be light which can lead to increased volatility. Thursday Durable Goods Orders for November will be released. This report gives us insight into the manufacturing sector by tracking orders for big-ticket times that are expected to last at least three years. Also being released Thursday is the Conference Boards Consumer Confidence Index (CCI). This report gives us an indication of the consumers' willingness to spend. The theory is the more confident consumers are in their personal financial situations the more likely they are to make large purchases. Consumer spending fuels our economy so this is a closely watched report.
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