Texas Mortgage Market Update – For the week of January 7, 2013

>> Texas Mortgage Market Update

QUOTE OF THE WEEK… “Never tell your resolution beforehand, or it’s twice as onerous a duty.”–John Selden, English jurist and scholar

INFO THAT HITS US WHERE WE LIVE… Our leaders in Washington aren’t telling if they’ve truly resolved to put our fiscal house in order, but at least last week’s deal to avert the fiscal cliff left housing a winner on most issues. First, they extended mortgage forgiveness debt relief through 2013. If they hadn’t done this, principal balances written off by lenders to help homeowners with underwater mortgages would have been treated as ordinary taxable income. The bill also re-established the deduction for mortgage insurance premiums for 2012 and 2013 for people with adjusted gross income below $110,000.

In addition, the compromise offers tax credits to homeowners making energy-efficient home improvements in 2012 and 2013. Builders get a tax credit on new homes constructed in 2012 and 2013 that meet federal energy standards. U.S. manufacturers of energy efficient appliances also earn tax credits. Best of all, tax deductions for mortgage interest and property taxes were left untouched, but that battle isn’t over, since the politicians will soon be reforming the tax code. Always consult a tax professional for definitive answers on all these issues.

BUSINESS TIP OF THE WEEK… People buy from people. Rather than talking business or current events with prospects, bring up family, hobbies, whatever interests you. Take the time to build a personal connection first.

>> Review of Last Week

WHAT A RELIEF… Last Tuesday, with the country poised to go over a fiscal cliff of major tax hikes and spending cuts, Congress averted it by passing budget legislation the President agreed to sign. They raised taxes on a small portion of wealthy Americans and extended unemployment benefits, and the fact they came to any agreement set off a humongous relief rally on Wall Street. The S&P 500 index closed Friday at a five-year high, enjoying its largest weekly percent gain in more than a year. But spending cuts weren’t addressed, so there’ll be more political wrangling on that and the $16.4 trillion debt ceiling limit we’ll soon reach.

All was not upbeat as stocks fell Thursday after the minutes from the Fed’s December meeting revealed some officials want to see an end to the central bank’s bond-buying economic stimulus program later this year. Economic data continued mixed, with ISM Manufacturing and initial and continuing jobless claims missing estimates. But ISM Services topped forecasts and showed growth for that sector, while Friday’s December Employment Report added a modest 155,000 jobs, although the unemployment rate remained at 7.8%.

For the week, the Dow ended up 3.8%, to 13435; the S&P 500 was up 4.6%, to 1466; and the Nasdaq was up 4.8%, to 3102.

Bonds got slammed as stocks soared on the cliff deal and investors worried the Fed might slow its bond purchases. The FNMA 3.5% bond we watch ended the week down .14, at $106.05. National average mortgage rates held near record lows last week in Freddie Mac’s Primary Mortgage Market Survey. In the Mortgage Bankers Association weekly survey, applications for purchase loans were finally down, after increasing five weeks in a row.

DID YOU KNOW?… At the New Year, a resolution is an expression of intent to do something. But in the corporate world, a resolution is an official document representing an action on the part of the Board of Directors.

>> This Week’s Forecast

QUIET START… After last week’s melodramatics, we have a very quiet period of economic reporting. Thursday, Initial Weekly Unemployment Claims are expected to remain above 350,000 while Continuing Unemployment Claims stay at the 3.2 million level.

Friday, the November Trade Balance should shrink a bit, showing a little more strength in our exports. This will be followed in the afternoon by the December Federal Deficit, forecast still way too high, above $80 billion. Please note, that’s for the month!

>> The Week’s Economic Indicator Calendar

Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates.

Economic Calendar for the Week of Jan 7 – Jan 11

>> Federal Reserve Watch

Forecasting Federal Reserve policy changes in coming months… Last week’s 7.8% December unemployment handily missed the 6.5% target the Fed wants to see before it moves up the Funds Rate. Note: In the lower chart, a 1% probability of change is a 99% certainty the rate will stay the same.

Current Fed Funds Rate: 0%–0.25%

Probability of change from current policy: