Mortgage News

"THE ONLY HISTORY THAT IS WORTH A TINKER'S DAMN IS THE HISTORY WE MAKE TODAY." Henry Ford. And making history is exactly what happened last week on several fronts...including home loan rates...so let's take a closer look.

On Tuesday, the Fed slashed the Federal Funds Rate (the rate banks charge each other to lend money overnight) by .75% to the lowest target range in history of 0% to .25%. The Fed also lowered the Discount Rate (the rate at which banks can borrow directly from a Federal Reserve Bank) by .75% down to .50%. In the past, Bond pricing and home loan rates have reacted negatively to these types of Fed cuts due to fears that inflation will increase. But during this history making week, things were different...

First, the Fed's Policy Statement included their intentions to purchase as much as $600 Billion of debt issued or guaranteed by Fannie Mae, Freddie Mac and other government-backed mortgage businesses in a direct effort to help lower home loan rates. Additionally and as mentioned, Fed cuts typically lead to inflation - the arch enemy of Bonds and home loan rates, but this time the Fed stated that inflation pressures have currently diminished appreciably and is expect inflation to moderate further in coming quarters. This comment rings true after seeing Tuesday's inflation-measuring Consumer Price Index report, which showed that consumer prices dropped more in November than any other month since record keeping began in 1947. In response, home loan rates dropped to the lowest levels that have ever been seen.

In other history-making news from the week, the auto industry finally received some relief on Friday, as President Bush announced a deal that will provide GM and Chrysler with $13.4 Billion worth of government loans in exchange for restructuring. Ford has more cash on hand than the other two, and has said it should be able to avoid tapping into federal dollars unless weak auto sales continue longer than expected into 2009. While this announcement is good news for the economy and initially gave Stocks a boost, it did little to quiet the volatility in the markets...but home loan rates still closed out the week at record low levels, and improved by about .25% from the previous week.

With home loan rates at historic lows, there has never been a better time to examine your own home loan situation and plans for the future. Sometimes human nature drives people to be a little greedy and attempt to wait for even lower rates before acting...but the opportunity cost of missing the savings that could be benefited from right now - by waiting for something that may never happen - could quickly mount up into thousands of dollars. Take a minute and get in touch with me. Let's take a look at your situation, and ensure you are saving all the money that you can, and positioned correctly for your future home and financial plans.

SPEAKING OF PLANNING AHEAD - MANY FOLKS ARE HOPING THAT THEIR TAX REFUND WILL BE ENOUGH TO HELP PAY OFF HOLIDAY PURCHASES. BUT WOULDN'T IT HAVE BEEN BETTER TO KEEP THAT REFUND MONEY IN YOUR OWN POCKET IN THE FIRST PLACE...WHERE IT BELONGS? CHECK OUT THIS WEEK'S MORTGAGE MARKET VIEW FOR AN IDEA THAT CAN BENEFIT YOU RIGHT AWAY!

Forecast for the Week

Next week will be a holiday shortened week in the markets, but there are still several important reports due for delivery. On Tuesday, we'll get a look at the housing market from both the Existing Home Sales and New Home Sales Reports. We will also get a read on the economy at large this week with Tuesday's Gross Domestic Product Report - the broadest measure of US economic activity - and Wednesday's Durable Goods Report. Durable Goods are items like cars, furniture, appliances, business equipment, and other goods that are made to last longer than three years. This report is a good measure of consumer and business consumption and buying behavior, and given the state of our economy, it will be an especially important report to watch.

Wednesday also delivers a special package on inflation information, with the Fed's favorite gauge of inflation, the Core PCE (Personal Consumption Expenditure) Report. Remember that the Fed has stated that they believe inflation pressures have diminished, and this belief has helped Bonds and home loan rates improve. This means the inflation numbers in this report will be important to watch, to see if they confirm the Fed's comments.

Remembering that when Bond pricing moves higher, home loan rates move lower...you can see in the chart below how home loan rates have reached historically low levels. I'm always glad to hear from you, and invite you to take a few minutes to contact me to discuss the current rate environment and how it might benefit you.

Chart: Fannie Mae 4.5% Mortgage Bond (Friday Dec 19, 2008)

The Mortgage Market View...

This time of year, millions of Americans find themselves wondering how they're going to pay for all of the items on their holiday shopping lists. Perhaps you're considering charging your purchases on a credit card and then paying that card off with your tax return. But wouldn't it be nice if you had that money already? Sure, you could go to a service that gives you money now for the refund check you're expecting... but the fees involved can take a hefty chunk out of your refund.

So how can you plan ahead next time?

When you think about it, getting a refund check means that you let the IRS use your money throughout the year without paying you any interest. Wouldn't you rather have the money during the year yourself?

Here's how you do it. The IRS allows you to increase the number of dependants on your W-4 withholding form, meaning that less will be withheld for taxes from each paycheck. In the past, if you claimed greater than nine dependants, an explanation and approval may have been required. But the IRS has lifted this restriction, allowing you to voluntarily increase your dependents claimed.

This lets you have more money in each paycheck instead of "loaning" the money to the IRS and having to wait for a refund.

But don't go overboard. You should only lessen the periodic tax withholding to match the expected refund. This way you are taking your refund as you go; instead of letting the IRS hold on to it.

Believe it or not, the IRS actually makes it easy to calculate!

The IRS offers a nifty IRS Bean Counter calculator for free, which lets you see how a change in withholding will affect your paycheck.

Take advantage of this calculator today to see how changes can impact your take-home pay.

Remember, before you make any changes, you want to be sure you are balancing the amounts carefully and correctly, so it's always a good idea to check with your tax professional. If you need help or a referral, just give me a call!

The Week's Economic Indicator Calendar

Remember, as a general rule, weaker than expected economic data is good for rates, while positive data causes rates to rise.

Economic Calendar for the Week of December 22 - December 26