What happens when you get ready to fall down a cliff and when you close your eyes real tight — bracing for impact– nothing happens? Well, that is what happened last week when Congress magically caused the cliff to be moved. All along we indicated that the most probable result was for a very last minute agreement that would also kick the can down the road. Congress is so predictable because that is exactly what happened. The very last minute was defined as approaching midnight on New Year’s Day. And while the agreement addressed a variety of issues, it also left plenty more to argue over in about two months time when Congress must raise the debt ceiling and automatic cuts in government programs are scheduled to take place.
Of course, Congress could take care of that problem in January and avoid another last minute death-defying experience. But what is the fun in that? No, we are likely to go down to the wire again in a few months. For now, we all breathe easier. And while there was damage done in the form of consumers holding back on spending and businesses holding back on hiring, the employment report released on Friday tells us that this damage was not as strong as we would have expected. America is a resilient nation and the economic recovery remains on track despite games played in Washington. It may take a while for us to collect our breath, but we believe that we will carry forward towards a stronger 2013.
The Markets. Rates were again stable in the past week, however the report did not reflect a trend upwards toward the end of the week. Freddie Mac announced that for the week ending January 3, 30-year fixed rates fell one-tick from 3.35% to 3.34%. The average for 15-year loans also fell one-tick to 2.64%. Adjustable rates were up slightly with the average for one-year adjustables increasing to 2.57% and five-year adjustables rising to 2.71%. A year ago 30-year fixed rates were at 3.91%. Attributed to Frank Nothaft, Vice President and Chief Economist, Freddie Mac, “Rates started the year near record lows which should continue to aid the ongoing housing recovery. New home sales rose in November to a two-year high and were up 15.3 percent from the previous November. Similarly, pending sales on existing homes increased for the third month in November to the strongest pace since April 2010.” Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.
Current Indices For Adjustable Rate Mortgages
Updated January 4, 2013
Daily Value Monthly Value
Jan 3 November
6-month Treasury Security 0.12% 0.14%
1-year Treasury Security 0.15% 0.18%
3-year Treasury Security 0.40% 0.36%
5-year Treasury Security 0.81% 0.67%
10-year Treasury Security 1.92% 1.65%
12-month LIBOR 0.864% (Nov)
12-month MTA 0.172% (Nov)
11th District Cost of Funds 1.000% (Nov)
Prime Rate 3.25%
Homeowners fare well in the fiscal cliff deal passed by the Senate and House on Jan. 1. The American Taxpayer Relief Act of 2012 apparently extends a law that expired at the end of 2011, which allowed for the deductibility of mortgage insurance (MI) premiums, according to a research report from Isaac Boltansky with Compass Point Research & Trading. The law now applies to fiscal years 2012 and 2013. “The law dictates that eligible borrowers who itemize their federal tax returns and have an adjusted gross income (AGI) of less than $100,000 per year can deduct 100% of their annual MI premiums,” Compass Point said. “Certain borrowers with AGIs above $100,000 may benefit from the deductibility as well but are subject to a sliding scale. The tax break covers private MI as well FHA MI and VA and Rural Housing Service fees. In 2009, about 3.6 million taxpayers claimed the MI deduction,” the research firm added.
One of the more watched provisions of the fiscal cliff was the Mortgage Forgiveness Debt Relief Act of 2007, which was set to expire on Dec. 31. The fiscal cliff deal extends it for another year, meaning homeowners who experience a debt reduction through principal forgiveness or a short sale are exempt from being taxed on the forgiven amount. “The amount extends up to $2 million of debt forgiven on the homeowner’s principal residence,” Compass Point Research & Trading said. “For homeowner’s to qualify, their debt must have been used to ‘buy, build, or substantially improve’ their principal residence and be secured by that residence. The law, which was passed in 2007 with a 5-year sunset provision, will now be in effect until Jan. 1, 2014.” Another win for housing is a provision tied to the government’s plan to increase the capital gains tax rate from 15% to 20% for individuals who earn more than $400,000. While in theory, this is harder on higher-income homeowners, Compass Point sees a silver lining through an exclusion. Compass Point notes the law “states that only gains of more than $250,000 for individuals ($500k for households) are subject to taxes on the excess portion of capital gains. Point being, in order for an individual homeowner to be impacted by the increased capital gains tax rate they would need to have an adjusted gross income above $400,000 and gain more than $250,000 from the sale of the property. Since this exclusion threshold remained intact, the impact of the capital gains tax increase is limited.” Source: HousingWire
Homeownership will be a bit more affordable for eligible U.S. service members in 2013. The Department of Defense has increased its Basic Allowance for Housing (BAH) for 2013, giving most active duty personnel larger monthly stipends to offset housing payments. The Basic Allowance for Housing is a monthly, non-taxable stipend paid to many active duty military members. Previously, the Basic Allowance for Housing was known as Basic Allowance for Quarters (BAQ). BAH rates are based on average housing costs, and are updated annually with data from property managers nationwide. Current rental rates for townhomes, duplexes, apartment units, single-family homes and other residence types are considered in the Basic Allowance for Housing, as is other information culled from the American Community Survey, an annual U.S. Census Bureau publication. The Basic Allowance for Housing is payable to military members in non-government quarters and there are three factors which determine a military member’s individual Basic Housing Allowance: Pay Grade, Location and Number of Dependents. As would be expected, military members with higher pay grades (i.e. rank) receive a larger Basic Allowance for Housing. The same is true for military members living in “expensive” cities as compared to inexpensive ones. And, lastly, military personnel with dependents receive higher monthly allowances as compared to personnel without dependents. Beginning January 1, 2013, eligible service members will receive an average Basic Allowance for Housing increase of 3.8%. Personnel in some areas will receive an increase which is larger than the national average; some will receive less. For more specific information regarding the BAH, the following links will connect you with the actual data for each metropolitan area in the United States (Sources: Daily Mortgage Reports and VA):
• http://militarybenefits.info/wp-content/uploads/2012/12/2013-With-Dependents-BAH-Rates.pdf
• http://militarybenefits.info/wp-content/uploads/2012/12/2013-Without-Dependents-BAH-Rates.pdf
Aaron Lending, LLC 