Week In Review 4/25/16
April 25th, 2016
Mortgage Rates Dip to Annual Low
When the Federal Reserve raised its interest rates late last year, most mortgage rate prognosticators saw it as a sure sign that home-loan rates would finally rise meaningfully. In fact, just the opposite has happened. The average rate on the popular 30-year fixed loan is now at its lowest level of the year and could potentially head lower into new record territory.
“It’s impossible to know how timing will play out, but I definitely see the ingredients in place for new all-time lows sometime soon,” said Matthew Graham, chief operating officer of Mortgage News Daily. “It actually concerns me how convinced I am that this will happen eventually.”
A potpourri of political and economic factors are behind the fall in mortgage rates, which follow loosely the yield on the U.S. 10-year Treasury. Both the Fed and the European Central Bank expressed concern this month about the trajectory of the global economy. Consumers and investors are on edge because of three factors: Oil prices can’t seem to make a decided move higher; some analysts are concerned about a stock correction; and the race for the White House has been highly volatile.
“You have the makings for quite the rate-friendly environment,” Graham said.
Lower rates did prompt a reboot in mortgage refinances last week, but did nothing to spur homebuyers. Mortgage applications to purchase a home continue to weaken. Buyers and sellers think now, the height of the spring market, is a bad time to make a deal, according to Fannie Mae, which just recorded its worst monthly home purchase sentiment in 18 months.
“Growing pessimism over the last three months about the direction of the economy seems to be spilling over into home purchase sentiment,” said Doug Duncan, senior vice president and chief economist at Fannie Mae. “The gap between the share of consumers who think the economy is on the wrong track and the share who think it is on the right track has widened, nearly matching its reading last August, when concerns regarding China and oil prices led to the biggest stock market plunge in years. In turn, we saw dips this month in income growth perceptions, attitudes about the home selling climate, and job confidence.”
While rates may be low, mortgage credit availability actually tightened in March, according to the Mortgage Bankers Association. The tightening came largely in conventional loans, while government programs such as FHA and VA lending relaxed slightly.
Homebuyer traffic did ramp up in March, driven by lower rates and warmer weather, according to analysts at Credit Suisse. Affordability and supply, however, could keep that traffic from translating into closed sales.
Domestic economic data could drive rates in either direction this week, with reads on retail sales and producer prices on Wednesday and the all-important consumer price index Thursday.
Source: Yahoo Finance, Diana Olick
This Week’s Economic Data
- U.S. Housing Starts fell a very sharp 8.8% in March to a 1.089 million annualized rate, which is well below consensus for 1.167 million and below the low estimate for 1.120 million.
- Japan Merchandise Trade Balance for March was in surplus for the second month. The surplus was 754.985 billion, up from a revised 242.164 billion in February.
- The Great Britain Labour Market was unexpectedly weak in February/March with unemployment posting a surprise increase and earnings growth slowing sharply.
- U.S. Existing Home Sales rose more than expected in March, up 5.15 to a 5.330 million annualized rate that, however, fails to reverse a downwardly revised 7.3% drop in February.
- Great Britain Retail Sales had a poor March. Following a slightly steeper revised 0.5% fall in February, volume sales declined an additional 1.3% on the month, the worst performance since January 2014.
Source: Ivy Funds
Week in Review 4/18/2016
April 18th, 2016
2016 Presidential Election: Taxes
2016 marks the 30th anniversary of the Tax Reform Act of 1986. Remarkably, in that election year, Congress and the president did what was thought to be impossible—work in a bipartisan manner to defy the armies of interest groups and lobbyists in Washington and enact sweeping tax reform. But unlike 1986, tax reform is getting mentioned more on the campaign trail than on Capitol Hill. Almost every single candidate in both parties has introduced policies that would alter our tax code. However, the approach that candidates have taken differs tremendously.
Hillary Clinton would boost economic growth by giving tax cuts to the middle class and small businesses. She would reduce income inequality by raising the minimum wage. She would raise short-term capital gains taxes for those earning $400,000 a year. Since the budget deficit is a large contributor to the declining dollar, high oil prices and inflation, its elimination is critical to the long-term health of the U.S. economy.
Donald Trump would lower income and corporate tax rates and eliminate many loopholes. He would reduce the deficit by cutting waste in spending and eliminating the Departments of Energy and Education ($80 billion combined). He would cut military spending (currently at $800 billion). He would need to cut the $4.1 trillion budget by 12% to eliminate the $500 billion deficit.
Senator Sanders would spend more on infrastructure, convert Obamacare to an expanded Medicare program, and increase Social Security and other entitlement programs.
He promises affordable education for all, a higher minimum wage, and more benefits for workers. He would raise taxes on businesses and overseas profits. He would reinstate Glass Steagall, and break up banks that are too big to fail. He would tax financial transactions to curb speculators.
Senator Ted Cruz would impose a 10% flat tax on all income, including wages, capital gains, dividends, and business income. He’d raise the standard deduction to 10% and personal exemptions to $4,000. He would eliminate itemized deductions except for charitable contributions, mortgage interest, the Child Tax Credit, and the Earned Income Tax Credit. He’d raise the IRA contribution level to $25,000 and allow savers to use it for any purpose. His plan eliminates the estate tax, the Alternative Minimum Tax, and Obamacare taxes.
Understanding the candidates’ tax plans and their implications is crucial in making an informed decision at the voting booth. We have provided a very brief synopsis of each candidate and their plans, but the level of detail for each individual plan is much deeper. For assistance in understanding any tax changes as it pertains to you, feel free to call or email us any time.
Source: The Tax Foundation
This Week’s Economic Data
- China merchandise trade surplus in yuan terms was 194.6 billion yuan in March, down from 209.5 billion yuan in February.
- U.S. retail sales, down a disappointing 0.3% in March, were pulled lower by auto sales but unfortunately do show wider weakness. Auto sales fell a very steep 2.1% in March. This is the biggest drop for vehicle sales since February 2015.
- U.S. consumer price index core, which excludes food and energy, rose only 0.1% in March following two solid back-to-back gains of 0.3%.
- U.S. jobless claims fell a sizable 13,000 in the April 9 week to 253,000.
- China GDP was up 6.7% from a year ago. It was down 6.8% in 4Q2015.
- China Industrial Production for March was up a greater than expected 6.8% from a year ago. Expectations were for an increase of 6.0%.
Source: Ivy Funds
Week in Review 4/11/16
April 11th, 2016
Reminder: Make Your 2015 Health and Retirement Contributions by Tax Day
The deadline to file personal tax returns is fast approaching — and that means so too is the deadline to stash away money in certain tax-advantaged retirement and savings accounts if you want to have those contributions count as 2015 contributions.
The tax filing deadline this year for most U.S. residents is Monday, April 18. Residents of Maine and Massachusetts will have an extra day, until April 19, because Monday in those states is Patriots’ Day, a public holiday.
Here’s a look at some accounts that you can make final contributions by tax day.
Health savings accounts (HSAs)
A health savings account is a tax-exempt account that allows individuals and families with high-deductible health plans to pay for qualifying medical expenses. There was $24.2 billion held in more than 13.8 million accounts as of 2014, according to an estimate by The Employee Benefit Research Institute.
Contributions to HSA accounts are tax deductible and earnings in HSA accounts grow tax-free. For 2015, the IRS limited HSA contributions to $3,350 for individuals, and to $6,650 for families. Would-be HSA account holders have until the tax filing deadline to open and fund an account and have it apply to the 2015 tax year.
While employers may offer to administer and fund HSA accounts, consumers can also open and fund their own accounts with HSA trustees, such as banks, credit unions, insurance companies and brokerage firms. HSA accounts may have costs, like maintenance and setup fees. The good news, however, is that banks and credit unions often offer higher interest rates on HSA accounts than on other savings accounts.
Individual retirement accounts (IRAs)
Individual retirement accounts allow workers to make tax-advantaged contributions to save for retirement. More than $7 trillion was held in IRAs at the end of September 2015, according to an estimate by the Investment Company Institute.
For 2015, anyone under the age of 50 can contribute up to $5,500 to IRA accounts per year — that’s total, even if you have both a Roth IRA and traditional IRA account. Those aged 50 or older may contribute up to $6,500. But people of all ages face a second ceiling: contributions can’t exceed your taxable income.
Also, individuals can only contribute to a Roth IRA if they make less than $116,000 if they are single, or less than $183,000 if married and filing jointly. If you make more than that, the amount you can contribute begins to phase out, with single people ineligible for a Roth IRA when their income exceeds $131,000 and married couples filing jointly ineligible when their income exceeds $193,000. Individuals have until the tax filing deadline to open and make 2015 contributions to traditional and Roth IRA plans.
Self-employed retirement accounts
In the case of self-employed retirement plans, several deadlines have already passed, but here are some instances in which the tax filing deadline still applies:
Solo 401(k)s: If you opened a solo 401(k) account during the 2015 calendar year, you may make 2015 contributions to it until the tax filing deadline.
SIMPLE IRAs: If you opened a SIMPLE IRA account by Oct. 1, 2015, you may make 2015 employer contributions to it until the tax filing deadline. The deadline for making employee contributions has already passed.
SEP IRAs: You can both open and make 2015 contributions to a SEP IRA until the tax filing deadline.
Source: The Alert Investor, by Alice Gomstyn
This Week’s Economic Data
- U.S. international trade deficit came in at a wider-than-expected $47.1 billion in February. Domestic demand rose 1.3% to $225.1 billion, while exports rose 1.0% to $178.1 billion.
- Japan PMI was 50.0 for March, the breakeven point between contraction and expansion.
- U.S. FOMC minutes for March was lively, as hawks pushed hard for an immediate rate hike while the majority, concerned over global risks, successfully pushed for no change.
- U.S. EIA petroleum status report sited crude oil inventories fell 4.9 million barrels to 529.9 million barrels in the April 1 week. Product inventories rose, with gasoline inventories up 1.4 million barrels and distillates up 1.8 million.
- U.S. jobless claims are holding at record lows. Initial claims fell 9,000 in the April 1 week to a slightly lower-than-expected 267,000.
Source: Ivy Funds