December 18 2006
For the week of Dec 18, 2006 — Vol. 4, Issue 51
Last Week in Review  |
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| “BEN…THE TWO OF US NEED LOOK NO MORE…WE BOTH FOUND WHAT WE’VE BEEN LOOKING FOR…” The words from Michael Jackson’s old hit “Ben” were sure fitting for last week’s action. News of blockbuster Retail Sales numbers showed that the consumer and the economy in general continue to hum along. And any of us out doing holiday shopping recently can attest - the long lines and crowded parking lots show the consumer is out spending in full force. In fact, shoppers might be singing, “I used to say I and me…now it’s PlayStation, now it’s Wii”.
But typically, strong economic activity like Retail Sales is accompanied by higher inflation. Yet last week’s tame and improving read on inflation via the Consumer Price Index report put a “Goldilocks” spin on the economy - not too hot, not too cool…but getting closer to “just right.” Even though there was quite a bit of volatility during the week, home loan rates ended the week exactly where they started. So it appears that Ben Bernanke found what he’s been looking for - a healthy economy, along with a better behaved rate of inflation. But Ben isn’t out of the woods yet - because these reports are volatile, there could always be a rat lurking about in one of the upcoming economic releases. DID YOU LEND YOUR GOOD FRIENDS AT THE IRS A FEW THOUSAND DOLLARS THIS YEAR…INTEREST FREE? YOU DIDN’T NEED TO…AND UNCLE SAM WOULDN’T DO THE SAME FOR YOU. READ THIS WEEK’S MORTGAGE MARKET VIEW TO LEARN A SMART WAY TO KEEP YOUR HARD EARNED DOLLARS WHERE THEY BELONG…IN YOUR OWN WALLET. |
| Forecast for the Week |
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| Speaking of upcoming economic releases - this week is chock full of potentially market-moving economic news. And following last week’s Consumer Price Index, this week will bring an even more important read on inflation, the Personal Consumption Expenditure Index. This is the Fed’s favorite measure of inflation, as it is more closely aligned with what consumers are actually purchasing, not a “fixed basket” of goods and services as measured with the CPI.
In addition, we’ll get a look at Housing Starts, Building Permits, the Producer Price Index on wholesale inflation, third quarter GDP, Personal Income, Personal Spending, the Philadelphia Fed Manufacturing Index, and last but not least, Durable Goods Orders as well. With all that action in store, this week could be volatile - especially if one of the many releases and reports produce any ratty numbers. The long term uptrend for Bond pricing remains intact, so home loan rates have remained at very attractive rates. But if we get some exceptionally strong economic news this week and see Bonds break below the Lower Trend Line - look out, as Bond prices and home loan rates could worsen quickly. Chart: Fannie Mae 5.5% Mortgage Bond (Friday Dec 15, 2006)
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| The Mortgage Market View… |
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| So as you’re out merrily spending for the holidays…are you already thinking about how you’ll pay the credit card bills when they arrive? Maybe you’re thinking you’ll use that juicy tax refund you’re expecting - but wouldn’t it be nice if you had that money now? Sure, many individuals who are expecting refund checks have discovered services that give them an advance on their money. And while these services will give you the cash right at the time of filing for your taxes, the fees involved can take a hefty chunk out of your refund. So what’s a tax (over) payer to do?
The IRS can actually help. When you think about it, getting a refund check means that you let the IRS use your money throughout the year without paying you any interest. Wouldn’t you rather have the money during the year yourself? Here’s how you do it. The IRS allows you to increase the number of dependants on your W-4 withholding form, meaning that less will be withheld for taxes from each paycheck. In the past, if you claimed greater than nine dependants, an explanation and approval may have been required. But the IRS has lifted this restriction, allowing you to voluntarily increase your dependants claimed. This lets you have more money in each paycheck instead of “loaning” the money to the IRS and having to wait for a refund. But let’s not go overboard…you should only lessen the periodic tax withholding to match the expected refund. This way you are taking your refund as you go; instead of letting the IRS hold on to it. There is even a nifty calculator the IRS has provided for free, which lets you see how a change in withholding will affect your paycheck. Here’s the link to the free withholding calculator: IRS Bean Counter And managing your withholding can also be a great tool if you are currently renting, but are about to buy a home. The new housing expense may be greater than the rent payments, but the new home will give you some important tax deductions. By adjusting your withholding when you buy a home, you can get the benefit of the new home deductions spread into each paycheck…which can make that new home payment a lot more comfortable. Before you make any changes, you want to be sure you are balancing the amounts carefully and correctly, so it is always a good idea to check with your tax professional. And if you need a referral, just give me a call! |
| The Week’s Economic Indicator Calendar |
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| Remember, as a general rule, weaker than expected economic data is good for rates, while positive data causes rates to rise.
Economic Calendar for the Week of December 18 – December 22
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