Market Update 1-2-13

Happy New Year to All-

I started to write this update last night. I wanted to hold off sending it out as to wait to see what our leaders passed and what avoiding the cliff really will do/did to our markets.

There are things that us as mortgage professionals need to be aware of. First, we did avoid the cliff even though we did go over it for one day. If we truly did go over the cliff, 800K civilian employees who work for the pentagon nation wide, would have lost there jobs and secondly 98% of Americans would have experienced tax increases. Congress voted and we passed a package that avoided the cliff. However, like any compromise, both sides are not happy. The deal that was passed by congress offers little to no cuts and a increase of taxes on the wealthy and investors. The new rates for the "wealthy" are at 39.6% for 400K (450K or more for couples), 45% for estate taxes up from 35%. Capital gains on dividends went up to 20% from 15%, and it extended unemployment benefits for another year. We have done nothing for entitlement spending and little to help our budget.

Stocks are rallying huge today and bonds are selling off. That means mortgage rates are higher today. But please understand this; nothing has changed with our market. We have done nothing to work our way out of the huge debt problem, nothing to stop the wasteful spending, and nothing to move to be fiscally responsible. So this little "pop" the market is feeling today and the increase we will see on our mortgage rates, I truly believe will be a short term event. If the deal was to cut entitlements, cut spending, and to raise taxes a bit, I think the market would have loved that much, much more and we would have seem a huge rally in stocks and a large sell off in bonds for the long term.

In February we have another huge fiscal issue coming up, the debt ceiling. What the debt ceiling is this: Every year our federal government is allowed to take on a certain amount of debt, if our debt becomes too much, we approach the "ceiling." When we approach the ceiling, we have two options, the government has to immediately stop spending, or the government has to vote to raise it. Obama is already stating that he is not negotiating with it and says that he is not cutting spending at this time (thus he is demanding that it be raised), and the republicans are saying they will not budge and only vote to raise it, if numerous cuts are made. So we will have our politicians battling this out over the next few weeks.

So what this means for us...as usual we need to be increasingly aware of what is happening. Rates will remain low over time; however, it is going to get pretty jittery as we approach all of these constant issues.

Be aware of your market, educate your clients and let's close some deals

Josh