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“WHAT DO WE LIVE FOR, IF IT IS NOT TO MAKE LIFE LESS DIFFICULT FOR EACH OTHER?” George Eliot. The current crisis in Haiti certainly puts this sentiment into perspective. For information on how you can help, see the View article below.
Last week it was reported that the inflation measuring Consumer Price Index (CPI) for December came in lower than expected. Overall, CPI for all of 2009 was fairly tame. But as you can see in the chart below, the closely watched Core CPI, which strips out volatile food and energy, rose to 1.8% year-over-year in December after hitting a multi-year low of 1.4% in August.
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So what does this mean for Bonds and home loan rates?
Clearly, inflation is tame at the moment…but slowly trending higher. The Fed will be watching this data very carefully in the coming months, as they seek to time perfectly the exit from what is essentially a zero rate environment. The Fed will likely err on the side of keeping the Fed Funds Rate lower for longer than they perhaps should, in order to avoid a “double dip” recession…but that will likely lead to more inflation down the road. Remember, Bonds and home loan rates hate inflation – so home loan rates are likely to trend higher as more inflation creeps into the economy.
Speaking of the Fed, they stepped up their Mortgage Backed Security (MBS) buying in the latest week, purchasing $14B in MBS, whereas the most recent prior purchases were around $9.5B. The Fed now has $113B left of their $1.25T allotted commitment, with the buying program set to wrap up on March 31st. The Fed’s purchases have helped home loan rates stay historically low – and although there has been some buzz about an extension of the program, it seems unlikely that will come to fruition. When the Fed purchases stop, home loan rates will be very susceptible to moving higher – so if we have not talked yet about your own home loan situation, or if you know of a friend, family member, neighbor or coworker who might like some advice, let’s be sure to connect very soon…time is of the essence.
The next Federal Reserve Policy Statement will be coming on January 27th, and they have gone out of their way to mention in the last several statements that the MBS buying program will not continue. Count on me to be listening closely when the Fed releases this next Statement, as this will help further gauge what home loan rates have in store.
In other news, Retail Sales for December came in well below expectations and were down from the 1.8% increase seen in November. While this suggests weakness in the Retail sector, it has to be taken with a grain of salt, as it is likely that frigid temperatures and snowy conditions throughout much of the country were contributing factors to the decline. Overall, 2009 was a very tough year for retail. Retail Sales for 2009 dropped 6.2% compared with 2008, which was the biggest decline on record, dating back to 1992.
There was some good news, however, on the manufacturing front, as the Empire State Manufacturing Index was reported above estimates, indicating manufacturing expansion in New York state and parts of New Jersey and Connecticut.
For the week overall Bonds were able to break above important technical levels, and home loan rates ended the week slightly better than where they began.
The markets will be closed on Monday in observance of the Martin Luther King, Jr. holiday, but plenty of news will follow later in the week. Wednesday brings more news from the inflation front, with the Producer Price Index (PPI) Report, which measures inflation at the wholesale level. Wednesday will also bring a read on the housing market, with the Housing Starts and Building Permits Report.
There’s also more manufacturing news ahead on Thursday with the Philadelphia Fed Report. Also in store for Thursday is another look at the weekly Initial Jobless Claims Report…so it’s sure to be an interesting week, with a variety of data for the markets to absorb.
Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result.
As you can see in the chart below, Bonds and home loan rates improved last week, largely due to tame inflation numbers and a decline in Stocks. In fact, Bonds were actually able to power through a tough technical “ceiling of resistance” at the 200-day Moving Average…but it remains to be seen if they will hold their gains. I’ll be watching closely to see if Bonds and home loan rates can build on their positive momentum in the coming week.
A Helping Hand for Haiti
The catastrophe in Haiti cries out for all of us to do whatever we can to help. But many of us aren’t sure exactly how to help or which organization to entrust with a donation.
To help you make sure your donation makes as big a difference as possible, consider donating to AmeriCares, which is one of the many fine organizations helping Haiti through disaster relief. AmeriCares is in the business of disaster relief and has an extensive network on the ground in Haiti, so your money will go to get supplies directly to those stricken instead of setting up infrastructure. You can learn more about them and donate at http://www.americares.org.
Obviously, the current economy presents challenges for many of us, but if you are able to help, your donation will go a long way. Whether it is through AmeriCares, or some other organization of your choice, any assistance you provide can help ease the suffering of those in need.
“Don’t believe the hype!” The words from Public Enemy’s hit song title rang true once again last week when the Commerce Department reported the Gross Domestic Product (GDP) for the 3rd Quarter. As you can see from the chart below, GDP rose by 3.5% for the first gain in a year and the strongest reading in two years.
While most media outlets were giddy about the news and started the hype that the recession is behind us, it’s important to remember that there’s more to the economic data than just the headlines.
The temporary “Cash for Clunkers” program has now expired, but was a big part of last quarter’s GDP gain. If we remove it from the total, the reading would have been a more modest 1.9%. But there is even more to the rise in the latest GDP number that is just temporary…
Also bolstering the economy has been the $8,000 first-time homebuyer tax credit – which is set to expire at the end of this month. Many home buyers have been taking advantage of this program – and wisely so.
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New Home Sales were reported last week, showing a 7.5-month supply of inventory. While that number is slightly worse than last month’s 7.3 reading, it’s still a big improvement from where we were in January. Back in January, inventory levels reached a high of 12.4-month supply! The improvement in housing inventories has been due in large part to the $8,000 First Time Homebuyer Tax Credit, which is set to expire on November 30.
There is a real possibility of an extension of this program through a proposed Bill, but it is not yet a certainty. The extension Bill still must be reconciled between the House and Senate, and then voted on for final approval. Under the current extension proposal, sales with signed purchase agreements by April 30th that close before June 30th, 2010 would qualify for the credit.
Another positive element would be the possible addition of $6,500 tax credit for other primary home purchasers, meaning the tax credit would no longer be limited only to first-time homebuyers. There is also a possibility that qualifying income limits could increase from $75,000 to $125,000 for singles, and from $150,000 to $250,000 for joint tax filers.
I will be keeping an eye on this for you, so stay tuned.
After all last week’s news and movement in the markets, Bonds and rates ended the week slightly better than where they began.
DON’T FORGET: THIS WEEKEND MARKS THE END OF DAYLIGHT SAVING TIME. SO MAKE SURE YOU SET YOUR CLOCKS BACK TO AVOID UNEXPECTED PROBLEMS…LIKE THE KIND DESCRIBED IN THE
MORTGAGE MARKET GUIDE VIEW ARTICLE BELOW!
This week brings us new employment numbers…and a chance to see if the labor market is showing signs of recovery. The employment news begins Wednesday with the ADP National Employment Report. Sandwiched between that report and Friday’s Jobs Report, is the Initial Jobless Claims report on Thursday.
The big news comes on Friday, when the all-important Jobs Report will be released. Last month’s report underscored the struggling labor market, as the Labor Department reported 263,000 jobs lost in September and an increase in the unemployment rate to 9.8%. The report due out this week is expected to show 166,000 jobs lost in October, which would be significantly better than the previous month if it happens. However, the Unemployment Rate is expected to continue its climb to 9.9%.
In addition to employment news, we’ll also see the ISM Index on Monday. This is the king of all manufacturing indices and is considered the single best snapshot of the factory sector.
Finally, the Federal Open Market Committee (FOMC) holds its two-day meeting this week, with an announcement of the Fed Rate Decision and Policy Statement due on Wednesday at 2:15 p.m. (ET).
Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result. As you can see in the chart below, Mortgage Bonds were able to bounce back last week with help from weakness in the Stock markets.
Turning Back the Hands of Time
This weekend, the sun set on another season of Daylight Saving Time. The extra daylight we now enjoy was actually the result of the Energy Policy Act, which was enacted by Congress back in 2005. But did you know that throughout its long history, Daylight Saving Time has had a remarkable and sometimes unexpected impact?
A man was actually able to avoid the draft for the Vietnam War using a Daylight Saving Time loophole. When he was born, it was just after midnight, DST. When he was drafted, he successfully argued that in his home state of Delaware, standard time – not DST – was the official time for recording births. So he was technically born on the previous date–which had a much higher draft lottery number – and he was able to avoid being drafted.
In September 1999, the West Bank was on Daylight Saving Time, while Israel had switched back to standard time. A group of West Bank terrorists prepared some timed bombs – but misunderstood the time change – and the bombs exploded early, killing the terrorists themselves, rather than the intended victims – two busloads of innocent citizens.
In the 1950s and 60s, each state and locality was permitted to choose start and end DST dates as they desired. During 1965, Minneapolis and St. Paul – which are considered one metropolitan area – didn’t agree on start dates, and for a period of time, these Twin Cities had a one hour time change between them. And on one Ohio to Virginia bus route, passengers technically had to change their watches seven times in 35 miles!
To keep to their published timetables, Amtrak trains cannot leave a station before the scheduled time. So when the clocks “fall back” in the fall, all trains that are running on time actually stop at 2 am – the official time of DST change – and wait one hour before resuming their routes. In the spring, the routes instantaneously become one hour behind schedule, but they just keep going and do their best to make up the time.
So Daylight Saving Time sure can have some unexpected impact.
As we enter the first week of Daylight Saving Time, be sure to double-check all of your electronic devices and confirm that the time is correct. Although you may be accustomed to your computer and maybe even your digital clock in your car automatically updating, the recent change of dates for Daylight Saving Time may require that these devices be manually changed, as they now may NOT be ready to update to the correct time on the correct date!
Remember, as a general rule, weaker than expected economic data is good for rates, while positive data causes rates to rise.
“THE DEVIL IS IN THE DETAILS…” Or so the famous saying goes. And when it comes to really understanding the various reports and events unfolding in the economy, it’s important to take a look at the details – not just the headlines. Here’s what you need to know.
On the inflation front, the Producer Price Index, which measures wholesale inflation, unexpectedly fell due to a drop in energy prices. While that seems like good news on the surface, keep in mind that next month’s number could climb higher again, as oil and natural gas have both been on a tear higher lately.
In housing news, Housing Starts and Building Permits both came in a bit below expectations, but this may be a sign that builders are exercising some caution – particularly in the face of the $8,000 tax credit for first time homebuyers that is presently set to expire on November 30th. Existing Home Sales came in better than expected – and a whopping 45% of those homes were sold to first time homebuyers – rushing to move in on that credit. Recent studies have shown that many who qualify for this tax credit aren’t even aware of it…so please let me know if you or someone you know needs more information – the clock is ticking!
Additionally, the level of existing homes inventory shrunk to a 7.8 month supply, down from a recent high of 10.1 months in April.
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In other news, 3rd quarter earnings season continues, where companies report their status as of the end of September. While many companies are beating expectations, it’s important to realize that many of those companies achieved better earnings by cost cutting and layoffs, not from increased sales. This is a big disconnect between Wall Street and “Main Street”. Stocks are rocketing higher based on these “positive” reports, but the cost cutting and job cutting measures can only go so far…you can’t simultaneously grow the ranks of unemployment – and then grow your business, hoping for increased sales to those same people who are without jobs.
Last week’s Jobless Claims numbers seem to confirm this as Initial Jobless Claims rose more than expected. In addition, the number of individuals continuing to receive unemployment benefits fell to the lowest level since March, but this is likely the result of people’s unemployment benefits expiring, without them having been able to find jobs.
Also worth noting is the news that ratings agency Moody’s lead analyst, Steven Hess, said that the US needs to cut its deficit or it could lose its “AAA” rating in the next 3 to 4 years, which we have maintained since 1917! Think of all we’ve been through – two World Wars, the Depression, three Wall Street collapses and major terrorist attacks…yet our credit quality has maintained that AAA rating, allowing us to issue debt at the most favorable rates. Hess went on to say that if the US doesn’t “get the deficit down in the next 3-4 years to a sustainable level, then the rating will be in jeopardy.” And just like on a mortgage when the credit rating gets reduced, interest rates move higher. This will definitely be something we’ll keep an eye on in the months ahead.
After all the week’s action, Bonds and home loan rates ended the week slightly worse than where they began.
AS THE PRESIDENT HAS DECLARED H1N1 – “SWINE FLU” – TO BE A NATIONAL EMERGENCY – GETTING THE FACTS IS MORE IMPORTANT THAN EVER. DO YOU KNOW HOW TO TELL WHAT’S JUST A COLD…AND WHAT IS ACTUALLY SWINE FLU? READ THIS WEEK’S MORTGAGE MARKET VIEW – AND PASS ON THE DETAILS TO YOUR FRIENDS AND COWORKERS.
Another record sized round of Treasury auctions are on tap this week – and the massive amounts of supply that continue to flood the market can cause home loan rates to move higher, if there is ultimately not enough demand to sop up all the supply. Additionally, there are several economic reports which could be market movers. Tuesday brings both the Consumer Confidence and Durable Goods Reports, the latter of which gives us an update on consumer and business consumption and buying behavior via data on items that are non-disposable, such as cars, furniture, appliances, games, cameras, business equipment, etc.
On Wednesday, there will be more news on the housing front with the New Home Sales Report, while Thursday brings another Initial Jobless Claims Report. Thursday also brings a read on the economy with the Gross Domestic Product (GDP) Report, which is the broadest measure of economic activity. And the week could end with a bang, as Friday brings the Fed’s favorite gauge of inflation, the Core Personal Consumption Expenditure (PCE) Index, found within the Personal Income Report.
Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result.
H1N1: Information is the Best Defense!
Despite predictions from researchers at Purdue University that the H1N1 outbreak will peak this week, the reality is that it won’t be going away any time soon. Let’s not forget that the news is filled with shortages of the vaccine, as the number of H1N1 cases continues to surge across the country. And federal officials have warned that a second, larger outbreak could occur in early January.
The reality is that the best way to stop the spread of H1N1 is to know the symptoms and to take steps to protect yourself-and others-from it. The following information can help.
What are the symptoms of H1N1… and how are they different from the common cold?
Symptoms:
Fever: Fever is rare with a cold. H1N1, fever is usually present with the flu in up to 80% of all flu cases. A temperature of 100°F or higher for 3 to 4 days is associated with the flu.
Coughing:
A hacking, productive (mucus- producing) cough is often present with a cold. A non-productive (non-mucus producing) cough is usually present with the flu (sometimes referred to as dry cough).
Aches: Slight body aches and pains can be part of a cold. Severe aches and pains are common with the flu.
Stuffy Nose: Stuffy nose is commonly present with a cold and typically resolves spontaneously within a week. Stuffy nose is not commonly present with the flu.
Chills: Chills are uncommon with a cold. 60% of people who have the flu experience chills.
Tiredness: Tiredness is fairly mild with a cold. Tiredness is moderate to severe with the flu.
Sneezing: Sneezing is commonly present with a cold. Sneezing is not common with the flu.
Sudden Symptoms: Cold symptoms tend to develop over a few days. The flu has a rapid onset within 3-6 hours. The flu hits hard and includes sudden symptoms like high fever, aches and pains.
Headache: A headache is fairly uncommon with a cold. A headache is very common with the flu, present in 80% of flu cases.
Sore Throat: Sore throat is commonly present with a cold. Sore throat is not commonly present with the flu.
Chest Discomfort: Chest discomfort is mild to moderate with a cold. Chest discomfort is often severe with the flu.
If you think you have the H1N1 flu, you should take a few common-sense steps to protect your friends, family members, and coworkers. For instance, if you feel sick, stay home until you feel better and have gone at least 24 hours without relying on medicine to break your fever.
In addition, wash your hands, linens, dishes, and so on thoroughly. And cover your mouth and nose with a tissue when you cough or sneeze–and then throw the tissue away immediately. Finally, if you have to share a small space with other people, consider wearing a facemask to help make sure you don’t spread the flu to the people around you.
Follow these steps and monitor your symptoms to help stop the spread of H1N1…and remain happy and healthy!
“THE HEAT IS ON.” Glenn Frey. While cooler temperatures are beginning to descend on many parts of the country, Bonds and home loan rates are feeling the heat and pressure from several fronts. Here are some details…along with why it’s important to act soon to take advantage of current home loan rates, as they may never be seen again.
Last week, the Core Consumer Price Index (CPI) was reported higher than expected, indicating that inflationary forces may already be underway. Remember, inflation erodes the value of the fixed return that a Bond provides – therefore, inflation is harmful to Bonds and home loan rates. Just the hint of inflation can cause home loan rates to worsen, which is what we saw last week.
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And here’s a very interesting and important note – when looking at these CPI numbers, it is important to understand the effect that the “Cash for Clunkers” program had on this index. The Cash for Clunkers program was very “creatively” accounted for as a reduction in the sales price of automobiles, which had to have a dramatic effect on lowering the CPI that was reported. Imagine how much higher CPI would have been had this “creativity” not been used. As even more inflationary fears creep into the economy, home loan rates will continue to rise.
Also adding pressure to Bonds and home loan rates is the Fed’s plan to ration out their remaining purchases of Mortgage Backed Securities. The Fed has purchased around $950B year-to-date out of the $1.25T allotted for the program, which is now set to expire March 31, 2010. This means the Fed will be averaging about $14B a week in purchases, a lot less than $25B or so they had been doing up until recently. And anytime demand for an item slows down…including Mortgage Backed Securities…the price goes down. And in this case, it means that home loan rates will move higher.
The bottom line is that the heat is on…and home loan rates are starting to rise already. While home loan rates are still incredibly low, it is clear this won’t last much longer – and we may not see rates at these levels again in our lifetimes. Give me a call if you want to discuss your own situation, or if you have a friend, family member, neighbor or coworker who might benefit from some information.
In other news, Retail Sales for September fell by 1.5% – and while the numbers were better than expected, they are still dismal at best. In addition, the flood of pre-holiday sales and layaway options that are already hitting – remember, it’s still mid-October – also suggests a lack of pricing power for retailers. Stock earnings season continued with some mixed news: There were reasonably strong earnings reports from Intel and JPMorgan Chase, while there were weaker than expected reports from Johnson & Johnson, General Electric and IBM. Bank of America also posted its first loss for the year.
After all the week’s heat and pressure, Bonds and home loan rates ended the week slightly worse than where they began.
FINDING OUT THAT YOUR EMAIL OR ONLINE ACCOUNTS HAVE BEEN COMPROMISED IS ONE PRESSURE-FILLED SITUATION! CHECK OUT THIS WEEK’S MORTGAGE MARKET VIEW FOR SOME GREAT TIPS FOR CREATING STRONG PASSWORDS.
More inflation news is ahead this week, with Tuesday’s Producer Price Index (PPI) Report, which measures inflation at the wholesale level. Also this week, we’ll get a double dose of housing news, first with Tuesday’s Housing Starts and Building Permits Report and second with Friday’s Existing Home Sales numbers for September. Some of the numbers have been looking better in recent months, as buyers move quickly to take advantage of the combination of low home loan rates, discounted home prices, and for first time home buyers, a juicy tax credit that is set to expire soon.
Given the state of the job market, Thursday’s Initial Jobless Claims Report continues to be an important report to watch. Last week’s Jobless Claims fell by 10,000 to 514,000 – and while this was lower than the 520,000 that was expected, it was still an enormous number of people applying for unemployment benefits, which highlights a weak labor market. Also, earnings season continues for Stocks, which could have a big impact on both Stocks and Bonds. The Dow had cracked the psychologically tough level of 10,000…but was unable to hold its ground, and was pressured back lower.
Remember: Weak or negative economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong or positive economic news normally has the opposite result.
As you can see in the chart below, Bond prices moved lower last week, meaning home loan rates moved higher. As discussed above – home loan rates are headed higher and are unlikely to return to similar levels anytime soon…and perhaps they never will again. Don’t miss your opportunity to improve your own home loan situation, or make a suggestion to someone you know that might be in need of some solid advice.
Stolen Hotmail Passwords Demonstrate Need for Stronger Passwords
By now, you’ve probably heard that 30,000 passwords for Hotmail and Gmail accounts were stolen earlier this month
But did you know that a security group analyzed those passwords and found that the most commonly used password was 123456? If that wasn’t bad enough, the second most common password that was used…yep, you guessed it…123456789.
In today’s electronic environment, that’s unbelievable. We no longer live in a world where we can use a simple string of numbers or a child’s name as a password. They’re just too easy to hack…and the results can be much more devastating than merely finding your emails made public.
The problem is that we all have so many passwords. So how do we make strong passwords that we can actually remember for every account?
The tips below can help you avoid the most common password pitfalls and even implement a few new ideas that will make your passwords easy to remember…and hard to break!
Don’t Use a Password that’s Easy to Guess
There’s no way around it…a well-protected password is hard for other people to guess. How do you do that? It’s pretty simple really. Just follow this advice:
•Use a random string of characters. That means no sequential letters or numbers, like those Hotmail accounts that used 123456!
•Make it looooong. The longer the better–even up to as many as 10 to 14 characters if space allows.
•Switch things up. Use a combination of upper and lower case letters, along with a few numbers mixed in the middle or end.
•Don’t use substitute symbols in common words. Using “@” for “a” or “1″ for “I” may look good to you, but most hackers are smart enough to break those substitutes rather quickly when the password consists of a common word.
•For that matter, avoid easy targets like words straight out of the dictionary or things like family names and birthdays.
Don’t Use the Same Password for All Accounts!
Most of us cheat when it comes to passwords. We have trouble remembering our passwords, so we come up with two or three that we can remember and use them everywhere.
But…you should avoid the temptation! That’s because all of your accounts will be vulnerable if even one account is compromised. The reality is, you need to create and remember multiple passwords–a different one for each account! Fortunately, it’s easier than you think. Just follow the steps below.
4 Simple Steps to Memorable, Yet Unique Passwords
Good passwords come down to two things: (1) they’re easy for you to remember and (2) they’re hard for others to break. Here’s a sure-fire tip that can help you achieve both!
1.Think up a phrase. Instead of a common word or family member’s name, think up a unique phrase that only you know. For example, you may think up something off the wall such as “I Like Short Hair Too.”
2.Make it an acronym. In our example, “I Like Short Hair Too” would become ILSHT.
3.Add Complexity. Remember those substitutes you’re not supposed to use with common dictionary words? Well, you CAN use them with your acronym. For example, “I Like Short Hair Too” can become “1 Like $hort Hair 2″ which makes: 1L$H2. You can also use upper and lower letters to make it 1L$h2. The point is to be creative, but in a way that you can easily remember it.
4.Make it unique. A password is only really unique if you use it for one account and one account only. So you can’t just use 1L$h2 for every account. And, in reality it’s still too short. Here’s the key to the whole process: Mix in additional letters and numbers that are unique to each account. For example, if you’re logging into a “gmail account” you can use the “gm” and “@cct” (for acct) to make: 1L$h2gM@cct. Then, for a Netflix account, you may use: 1L$h2Nf@cct. That way, you’re passwords will be hard for others to guess and unique to each account, but also easy for you to remember!
Of course, these are just examples. You’ll want to be creative and think up your own acronym and ways to add unique characters for each account. And then keep that little secret to yourself so no one will be able to guess your account passwords.
Follow these simple steps and you’ll have passwords that are tough to break, unique to every account, and easy to remember. And if you have children in your house who are starting to use passwords for email and IM accounts, teach them these steps to help educate them on the importance of strong passwords – they’ll thank you later in life!
Remember, as a general rule, weaker than expected economic data is good for rates, while positive data causes rates to rise.
It’s My Life… It’s Now or Never! The lyrics from Bon Jovi’s hit song say it all. This month’s edition is all about understanding and taking advantage of opportunities now… before it’s too late.
You’ve probably heard a lot about the $8,000 tax credit for first-time homebuyers. But did you know the $8,000 tax credit is about to end? The first article below provides details about the tax credit that you need to know. Another opportunity you don’t want to miss is a low interest rate. Interest rates have dipped near historic lows, but the second article below explains how you can avoid a costly mistake when it comes to rates.
This information is important for anyone who has even thought about purchasing a home or refinancing. So please forward this newsletter to friends, family members, and coworkers who may benefit from this information. And if you need any assistance at this time, just call or email.
$8,000 Tax Credit Nears End
The government is offering an $8,000 tax credit for first-time homebuyers – that is, folks who haven’t owned a home during the past three years. According to the plan, first-time homebuyers who purchase a home may be eligible for the lower of an $8,000 or 10% of the value of the home tax credit.
However, the program is scheduled to end soon. In fact, the Internal Revenue Service recently reminded potential first-time buyers that they must complete their first-time home purchases before December 1, 2009 to qualify for the special credit, which means the last day to close on a home and qualify for the credit is November 30, 2009. In other words, right now is the time to take advantage of this opportunity.
Here’s some information to help you understand what the tax credit benefits are and who qualifies.
Benefits of the Tax Credit
It’s important to remember that the $8,000 tax credit is just that… a tax credit. It’s a dollar-for-dollar tax reduction, rather than a reduction in a tax liability that would only save you $1,000 to $1,500 when all was said and done. So, if you were to owe $8,000 in income taxes and would qualify for the $8,000 tax credit, you would owe nothing.
Better still, the incentive is refundable, which means you can receive a check for the credit even if you have little income tax liability. For example, if you’re liable for $4,000 in income tax, you can offset that $4,000 with half of the tax incentive… and still receive a check for the remaining $4,000!
Who Qualifies?
The $8,000 incentive starts phasing out for couples with incomes above $150,000 and single filers with incomes above $75,000 and is phased out completely at incomes of $170,000 for couples and $95,000 for single filers. To break down what this phase-out means, the National Association of Homebuilders (NAHB) offers the following examples:
Example 1: Assume that a married couple has a modified adjusted gross income of $160,000. The applicable phase-out threshold is $150,000, and the couple is $10,000 over this amount. Dividing $10,000 by $20,000 yields 0.5. When you subtract 0.5 from 1.0, the result is 0.5. To determine the amount of the partial first-time homebuyer incentive to this couple, multiply $8,000 by 0.5. The result is $4,000.
Example 2: Assume that an individual homebuyer has a modified adjusted gross income of $88,000. The buyer’s income exceeds $75,000 by $13,000. Dividing $13,000 by $20,000 yields 0.65. When you subtract 0.65 from 1.0, the result is 0.35. Multiplying $8,000 by 0.35 shows that the buyer is eligible to reduce the tax liability by $2,800.
Remember, these are general examples. Borrowers should consult a tax advisor to provide guidance relevant to their specific circumstances.
What Type of Home Qualifies?
The tax credit is applicable to any home that will be used as a principal residence. Based on that guideline, qualifying “homes” include single-family detached homes, as well as attached homes such as townhouses and condominiums. In addition, manufactured homes and houseboats used for principal residence also qualify. Buyers will have to repay the credit if they sell their homes within three years.
Avoid This Costly Mistake
If you’ve been following the financial news, you’ve probably heard that the Fed’s been buying Mortgage Backed Securities. Unfortunately, people have picked up on the news and mistakenly discussed how these purchases will continue to cause rates to drop lower. But is that really what it means? No.
The following information can help set the record straight and help you make smart decisions that lead to a low interest rate for your home loan.
How is the Fed’s Bond Purchase Related to Rates?
The Fed has been buying Mortgage Bonds. BUT… more precisely, they’re buying a lot of FNMA 30-yr 5.0% and 5.5% Bonds. Many of the mortgages in these pools are outstanding home loans with rates between 6.0% and 6.5%, as the rate that a borrower pays is different than the coupon rate given to an investor buying into that mortgage pool, with the difference being taken by Wall Street firms and government agencies. The loans in these pools are likely to be refinanced and paid – because current rates make it very attractive to refinance a loan over 6.0%. Thus, giving the Fed a quick recoup on some of its investment.
Bottom line: The Fed’s purchase of higher rate coupons will not necessarily help rates to move lower, as their actions do not impact the loans being originated at today’s low rates.
The Problem Is…
Many consumers are in situations where they can refinance now and save hundreds of dollars a month on their mortgage payments. But if they hear people throwing around teases of lower rates ahead, they may decide to hold off on making the decision to save, in the hopes of gaining a few more dollars of savings per month if a lower rate came their way. Of course, while they’re waiting, rates could turn higher – especially when you consider that the Fed is scaling back its purchases of Mortgage Backed Securities – and this window of opportunity could pass them by entirely.
Is the Fed Scaling Back? And What Will It Mean to Rates?
Last week, the New York Fed began to scale back their Mortgage Backed Security purchase program. The Fed has been buying about $25 Billion worth of Mortgage Backed Securities per week, but the new plan to drag out these purchases over a longer period of time means that they will be reducing both the frequency and amounts of their purchases. This will cause higher levels of volatility, as the Fed will be purchasing less often and less consistently. As a result, rates will probably rise gradually over time.
Here’s the Clincher
Even if consumers are ultimately able to time the market perfectly and save another few bucks per month, they could still end up losing. That’s because while they delayed, they lost the savings each month they could have gained by taking action sooner. In other words, they may have lost hundreds of dollars for every month they waited. So even if they got lucky and obtained the rate they were looking for, it could take years to make up what they lost by waiting.
I don’t want anyone to miss an opportunity by either waiting or misunderstanding the media headlines. Let’s talk further on this. Call or email me, and let’s discuss what this might mean for you.
