Tax season is upon us, and if you’re a first-time homeowner, you might not be fully aware of the advantages available to you when it comes to property tax deductions. Owning property has numerous benefits when it comes to taxes—even if you have a professional tax preparer, it’s good for you to know what you can anticipate when your return is finally filed.

Mortgage Interest – When you make your monthly mortgage payment, part of it goes towards the loan and part of it goes towards the interest on the loan. Presuming that this home or another owned residence has been designated as collateral for the loan, this interest is deductible. Some conditions may apply. Your lender will send you a form 1098, which lets you know how much you have paid in interest for the previous year.

Home Improvements – If you take out a loan to make any significant home improvements—such as replacing a roof or foundations, or remodeling a room of the house—you may be able to deduct this loan as “home acquisition debt.”

Maintenance Property Taxes – Generally speaking, municipal property taxes may not be deducted, but in some instances local taxes that are used for maintenance or repair, and related interest, could be considered deductible.

Equity Debt – In some instances, your loan amount may have exceeded the amount needed to buy or improve the home. This is designated as “home equity debt,” and the interest from this debt may also be deductible.

Both state and federal governments view home ownership as a positive development and they do much to award new homeowners with tax breaks. Spend time with your accountant and mortgage lender to learn more about the new advantages you’ve gained!

Market Comment

Mortgage bond prices finished the week higher, helping mortgage interest rates improve. Rates were positive Monday morning but quickly whip-sawed higher Monday afternoon and Tuesday morning. Trading swung back positive again Wednesday and Thursday following weaker-than-expected existing home sales data and reports that Chinese manufacturing weakened. Oil prices bounced around, initially falling on consumption worries tied to the Chinese weakness, which eased some of the recent inflation fears. Prices spiked a bit higher Friday afternoon following reports that Iranian oil exports fell.

Looking Ahead

Income and Outlays

The personal income and outlays release is a monthly report issued by the Bureau of Economic Analysis (BEA). The data is important because it is thought to provide a solid indication of future consumer demand. The personal income component is primarily a measure of wages and salaries. The outlays component is primarily a measure of spending on goods and services. Together the figures provide analysts valuable insight into consumer economic standing and consumption.

The prior release showed an income increase but not as much as analysts expected. Generally stagnant wages coupled with tighter borrowing restrictions make it difficult for consumers to spend money. It is important to note that no single economic indicator can consistently predict the future of the economy. However, the personal income and outlays report is a closely watched release. The consumer remains a vital component of the US economy.

The data this week has the potential to cause mortgage interest rate volatility. Now is a great time to take advantage of low rates.

Copyright 2012. All Rights Reserved. Mortgage Market Information Services, Inc. www.ratelink.com. The information contained herein is believed to be accurate, however no representation or warranties are written or implied.

Located southwest of the Loop, near the University of Illinois campus, the Pilsen neighborhood has slowly been evolving into one of the more enticing areas for new home buyers and developers to seek property. Featuring a younger, more active, and ethnically diverse population, the area continues to rise in estimation among newly arrived Chicagoans as a place to find good deals on real estate and settle down.

Pilsen’s origins are primarily rooted in the culture of Eastern European immigrants—people from countries like Czechoslovakia, Poland, and Austria. This “Old World” aesthetic influenced the first architectural developments of the area, which were styled bohemian and baroque, including both residential and commercial buildings, and other structures such as cathedrals. Over time, this Eastern European population spread out to other parts of the city, and Pilsen became reinvented and reinvigorated as a hub of Hispanic and Latino Americans and working artists. Mexican groceries and restaurants, alongside other shops, have sprouted up throughout the region, and the community regularly holds festive, colorful events of Latino culture, such as the Fiesta del Sol (Festival of the Sun) and the Dia de Los Muertos (Day of the Dead).

Gentrification has taken hold in Pilsen, and the community residents are working with their alderman and with developers to negotiate a community that is both inviting to new families and young professionals while retaining the sense of community that has grown up around longtime residents. Gut-rehab properties, townhomes, and new condos have been appearing in the east areas of the neighborhood, while lower-priced lofts and storefronts remain available to younger artists or other individuals. Although there are still plenty of bargains to be found for home-hunters, real estate values are climbing in this exciting neighborhood.

Market Comment
Mortgage bond prices finished the week sharply lower, pushing mortgage interest rates higher. Rates were positive at the beginning of the week, following reports that China’s growth remained a concern. The positive movements were quickly erased Tuesday following better-than-expected data and strong stocks in which the DOW surged 218 points higher that day. The Fed meeting added fuel to the selling pressure of mortgage bonds by indicating that economic conditions were improving. Tuesday’s stress-test results of US banks showed strength, which also resulted in a sell-off of bonds and buying of stocks.

Looking Ahead

LEI
The index of leading economic indicators (LEI) is a weighted average of 11 economic variables that “lead” the business cycle. It is constructed for forecasting future aggregate economic activity. The 11 variables that make up the LEI measure workers’ hours, initial unemployment claims, new factory orders, vendor performance, contracts and orders for plant and equipment, new housing permits, changes in unfilled orders, prices of raw materials, stock prices, money supply, and consumer expectations.

Each of the variables that comprise the index has a tendency to predict (or lead) economic activity. For example, new orders for manufactured goods, new orders for plants and equipment, and new building permits are all direct measures of the amount of future production being planned for the economy.

Analysts monitor the LEI in an effort to predict future economic growth. When the LEI report is up, mortgage market participants expect credit demand to increase and inflationary pressures to build. Thus, when the LEI report is rising, interest rates tend to rise as well.

The LEI report is a valuable forecasting device that correctly predicts most economic turning points. The percentage change in the LEI is reported monthly and is an indication of the activity that will occur within the next three to six months. The LEI tends to turn down before peaks in the business cycle. Continuous declines are generally accepted as evidence that a recession continues.

Nine of the eleven components that make up this index are known before the release of the report, so the index is easy for economists to predict. Thus, although this is important predictive data for market participants, surprises are not common with the release of this data.

Copyright 2012. All Rights Reserved. Mortgage Market Information Services, Inc. www.ratelink.com The information contained herein is believed to be accurate, however no representation or warranties are written or implied.

Market Comment
Rates were positive the beginning of the week following reports that Greece would not make the deadline to persuade bondholders to restructure the debt they held. That all reversed by the end of the week when a large majority of bondholders looked to be on board. Greece was required to restructure the debt in order to obtain bailout funds from the European Union and the International Monetary Fund. Despite progress, there was still some uncertainty heading into the weekend. Most analysts agree that Greece still has challenges even if they obtain the bailout funds. Future instability in Greece could benefit our interest rates by re-igniting the flight-to-quality buying that has factored into our low rates.

Producer Price Index
The producer price index is a measure of prices at the producer level, and is important because it is the first inflation report to be released each month. Investors are typically able to gain an initial indication of inflationary pressures from the release. If producer prices are increasing, there is a tendency for producers to pass the increases on to consumers in the form of higher priced goods.

It is important to note that the PPI is only a measure of goods, while the consumer price index is a measure of goods and services. It is possible for the price of goods to remain stable, while the price of services increases. In this scenario, the PPI would do little to warn of a change in inflationary pressures, while the CPI report would provide an indication of the inflationary effects of the service component. This distinction between the two reports shows why most analysts view the CPI as a more accurate indicator of inflation. Nevertheless, market participants still gain valuable insight into potential volatility in the financial markets from the PPI release. Be cautious heading into the inflation data this week.

Copyright 2012. All Rights Reserved. Mortgage Market Information Services, Inc. www.ratelink.com. The information contained herein is believed to be accurate, however no representation or warranties are written or implied.