Month: October 2012

Mortgage rates continued their streak of small fluctuations. This time, all 10 of the programs in our Mortgage Rate Tracker either fell or stayed the same (for the October 22 rates, go HERE). Remember: don’t get bogged down in day-to-day changes. The larger picture is that rates are at the lowest end of the spectrum, near record lows.

There will be plenty of housing and economic data released later in the week, including the FHFA Home Price Index, New Home Sales, Durable Good Orders, q3 U.S. GDP and a Consumer Sentiment survey. For now, we have a few news items:

Caterpillar has reported that its third quarter earnings beat expectations, but outlook for the recovery is for more of the slow, plodding growth we have seen over the past year. Doug Oberhelman, CEO of Caterpillar, the world’s largest construction and mining equipment maker, addressed the housing market:

“The bubble that we went through is being worked off, [and] there’s no question in my mind that housing starts will inch up… It’s contingent on the unemployment rate, how many people are working, and when that’s solved we’ll see housing starts back over a million.”

A report by real estate statistics research firm RealtyTrac reminds us that although home prices have shown a broad nationwide improvement, the recovery still has a ways to go. RealtyTrac studied 919 U.S. counties, grading them on five metrics: average home prices, unemployment, foreclosure inventory, foreclosure starts and distressed sales. In total, 65 percent of the markets had at least three of the five metrics below 2008 levels. Said RealtyTrac Vice President:

“The U.S. housing market has shown strong signs of life in recent months, but many local markets continue to struggle with high levels of negative equity as the result of home prices that are well off their peaks. In addition, persistently high unemployment rates are hobbling a robust real estate recovery in most areas.”

Diana Olick’s latest column on CNBC points out that small improvements on the market have distracted us from just how far we have left to go. Housing starts (43 percent) and permits (27 percent) are up from a year ago, but still at half the healthy level. About 15 million mortgage holders – 31 percent – are still underwater.

They saved this newborn tapir.

The 30-year fixed and 15-year fixed mortgage rates improved slightly from last week, but most programs on our 10-loan rate tracker showed little movement. For the complete set of rates, see HERE. We keep the rate news to a minimum this week to give us room to discuss two mortgage tax deductions that may be in jeopardy for the coming election cycle. We have reprinted sections from our October 15 article: “Attention Homeowners: Two Mortgage Tax Deductions at Risk.”

Taxation, regulation, and the national debt are at the forefront of the 2012 election cycle, as the nation decides how to build a solid platform for economic growth. Two well-known tax cuts will be at the center of the tax code reform discussion: the home mortgage interest tax deduction and the Mortgage Forgiveness Debt Relief Act, the latter of which is due to expire at the end of the year. The elimination of either tax break would increase the tax bill for effected homeowners, and – in the case of the Mortgage Forgiveness Debt Relief Act – hurt the short sale market.

Recently, presidential candidate Mitt Romney addressed speculation that his tax clan would close the mortgage interest tax deduction, telling CNN’s Wolf Blitzer that he would give “preference” to the popular programs, especially for the middle class. The loophole is expected to give homeowners $84 billion of deductions in 2012, and we don’t expect this to be challenged.

The tax deductions passed under Congress’ 2007 bill Mortgage Forgiveness Debt Relief Act and Debt Reduction Cancellation, are out on a much longer limb, putting pressure on distressed homeowners and the short sale market. With the expiration of the Bush-era tax cuts on December 31, 2012, this program will vanish unless Congress can put together an extension.

In the past, cancelled or forgiven debt was reported as taxable income, which included short sales or mortgage principal deduction. The Mortgage Forgiveness Debt Relief Act helped struggling homeowners by canceling that particular tax obligation, as the nation grappled with the massive housing market collapse. Without the debt-forgiveness tax deduction, home sellers participating in a short sale would find a significant increase in their tax bill. Should this deduction expire, short sale activity will likely drop sharply and foreclosures will again increase. Homeowners benefitting from principal reduction programs will also receive higher tax payments under such a situation.