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Wednesday, March 25, 2015

Mortgage Bond Market Analysis - Hump Day edition

Weak economic data and bonds are selling off?  Durable Goods Orders missed expectations BIG TIME coming in at -1.4 vs. forecast of +.4; ex-transportation it was -.4 vs. forecast of +.3.  This is a big miss and would normally get investors to buy bonds - especially with equities down big this morning.  That said, the recent run-up in the bond market, including a +33 basis point day yesterday probably has some traders wanting to take some chips off the table and take some profits.

The FNMA benchmark bond is currently down 19 basis points and the RSI has been overbought for several days now.  At 102.31, the benchmark bond is just 4 basis points above the first level of support.  Like every Thursday, we get weekly jobless claims numbers tomorrow and we get GDP and Michigan Consumer Sentiment Index on Friday.  The bond continues to trend down and is now down 24 basis points - 1 point below the support level. 

On a completely different note, rates are still fantastic and there are a lot of reasons why people should own rather than rent.  Here is a nice convenient list of tax deductions that people can get if they own their home (sharing this with your clients, whether they bought their home last year or in years past, is a good way to add value and ask for referrals):

·         Points on Home Mortgage and Refinancing. If you have bought a home in 2014 by availing mortgage, then apart from the mortgage interest, you can also write off the points on your tax return. Simply put, ‘points’ are the fees you pay to the lender for getting the loan. One point is equal to one percent of the principal loan amount. The fee varies from one point to three points depending on the trend prevalent in the area. Full deduction can be claimed for the points, provided they pertain to the purchase of the home.
·         Interest on Home Improvement Loan. Interest on home improvement loan is fully deductible if the improvement is made in the main home and it enhances its sale value.
·         Energy Efficiency Tax Credit. This is a tax credit the IRS offers you for making your home energy-efficient by installing equipment that will conserve energy while heating or cooling your home. Qualified storm doors, energy efficient windows, insulation, air-conditioning and heating system, etc are the things that can help save energy and earn you tax credits at the same time. The lifetime limit of the home energy credit is $500, out of which only $200 can be used for the windows. This credit is set to expire on December 31, 2016.
·         Renewable Energy Tax Credit. The Renewable Energy Efficiency Property Credit refers to the tax credit that you get on installing the equipment that uses renewable sources of energy, such as the sun, wind, and geothermal energy. You are eligible to gain this tax credit to the extent of 30 percent of the cost of the following equipment, installation included.
·         Qualified fuel cell property
·         Qualified solar electric systems
·         Qualified solar water heaters
·         Qualified small wind energy property
·         Qualified geothermal heat pumps.
·         Property Tax. The taxes paid to acquire the property are fully deductible from the taxable income and the same is reflected in the Form 1040. Transfer tax arising from the transfer of the property to the new owner is a very common item.
·         Redeemable Ground Rents. The redeemable grounds rents can be deducted if you have been paying monthly or annual rentals.
·         Interest Accrued on a Reverse Mortgage. The reverse mortgages considered as a loan advance and not an income. Hence, the amount you receive is not taxable. Any interest, including the original issue discount, accrued on a reverse mortgage is not deductible until the loan is paid off.
·         Premium Mortgage Insurance. You may be eligible to claim the deduction for the Premium Mortgage Insurance (PMI) on your tax return. However, this deduction is set to expire with the tax year 2014.

Make it a great day.

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