Taxes – have you filed yet? April 15th is less than a month out! The IRS claims this season is going smoothly after investing billions of dollars to improve customer service and target wealthy tax cheats. This season a call back function was added to the 1-800 number. As of March 15th, the IRS has received 71M returns (approximately 50% of total expected) and 98% have been processed. Approximately 7 in 10 people filing are owed refunds and the average refund is $3,109, a 6% increase year over year. The IRS is also starting a pilot program for free filling directly with the IRS (available for simple returns in 12 states) and 50,000 folks have used this service. The average person spends $140 annually preparing taxes. In the tax evasion realm, the IRS is targeting improper use of corporate jets and pursuing 125,000 wealthy individuals who neglected to file a return for the previous 6 years. While there is scrutiny over the IR budget, every dollar spent on tax enforcement returns $2 to $6 in additional revenue.
Mortgage Rates – improved this week as the price of Mortgaged Backed Securities increased to the best levels we have seen since late January. Bonds reacted favorably to the Fed meeting. Rates are up approximately 0.25% from this time last year.
Fed – during their March meeting the Fed unanimously voted to keep rates unchanged at the 5.25% to 5.5% which the market had anticipated. The big news that juiced mortgage bonds was when Fed Chair Jerome Powell announced they will be tapering their balance sheet reduction ‘fairly soon.’ The plan is for the balance sheet to remain neutral, meaning they would reinvest any of the bonds that hit their maturity point back into treasuries and potentially Mortgaged Backed Securities. Currently they are not reinvesting everything and letting their balance sheet decline which is increasing the supply and lowering the price of Mortgaged Backed Securities and causing upward pressure on mortgage rates. The Fed also released their dot plot which predicts a total rate decrease of 75bps this year for short term rates, lowering the cost of HELOCs, Auto Loans, Credit Cards, and other short-term debt. The market has priced this prediction in.
Home Sales – NAR’s Existing Home Sales , which measures closing on existing homes (not new construction 90% of the market), rose 9.5% in February to an annualized pace of 4.38M. Year over year sales are down 3.3% Inventory increased 6% month-over-month to 1.07M units which caused the increase in sales. This shows the appetite is present, the food just isn’t available. Median home price is at $385,000 up 5.7% year over year. Homes are on the market for an average of 38 days, a slight bump from 36 days in January. This continues to be a low number, but the slow rise would be good for the market. First time homebuyers make up 26% of sales, cash buyers account for 33% and investors are making up 21% of buyers.
Rents – Core Logic’s Single Family Rent Index for March showed rent prices increased 2.6% year over year, down slightly from the previous reading of 2.8% The CPI index is still showing a shelter cost increase of 5.7% and there continues to be a lag in the two reports.
Mortgage Applications to purchase homes this fell 1% last week and are down 14% year over year. Refinances fell 3% and down 3% from last year. Refinances make up 31% of transactions.