Presidents, Majorities and Tax Codes….Change
During President Biden’s campaign trail, his intentions to raise taxes were never kept a secret. This week he announced the need to increase capital gains, giving the same
numbers he detailed in September 2020, but this time the stock market didn’t like it losing 321 points. Bonds liked it.. as they usually benefit from fear in the stock market.. as money moves from stocks to bonds it drives prices up (demand vs supply) and yields (or rates) down. The 10yr treasury dropped to 1.59%… UNDER the 1.60% we’d been stuck at. Between his American Jobs Plan, American Families Plan, American Rescue plan, etc. It is estimated $4 trillion will be needed to reshape the American economy. Want to geek out on the Fact Sheets? click here.
Your investors, sellers, and anyone else making over $1 million a year will now pay just shy of HALF of their gains back in taxes. This is big. It will either keep people from selling, make them sell this year before the changes go into effect, or have them looking for loopholes. Yet another reason to educate!
Here are the numbers:
- Base rate goes from 20% to 39.6% for those earning $1 million or more
- The 3.8% tax on investment income that funds Obamacare stays in place
- Coloradoans pay a 4.63% state tax
- Total = 48.03%
Remember, income taxes are also going up for anyone making over $400,000
Rates Went DOWN!
Wait what? You want me to stick my hand in the what? and pull out the what what? Okay, I’m sorry.. I crack myself up and probably one of the very few who will remember this commercial. But that’s where my mind went when I saw that rates were going down… wait what? Ha!
Over time, rates will steadily rise. The trend will continue to be increasing as the economy recovers, people go back to work, the cost of goods increase with demand (inflation), government spending goes up, and the Fed starts tapering. But between here and there.. is volatility. They can go down. This past week and going into this week, we saw one of those unexpected moments where we rates dipped .125% to .25% lower. Freddie mac moved from 3.13% to 2.97%… a drop of 1.16%. Remember.. Freddie Mac tracks primary home rates with a .7% discount. Thanks to Mr. Mark Calabria, refinances, second homes, and investments are all higher.
So the obvious question is why did this happen and how long will it last? I can tell you why.. but can only guess on the how long.
Why… let’s start with the reason above. Remember how volatile the stock market and bond market were with each President Trump tweet? Presidents move markets. Which is why the market loves Biden. Not because it literally loves his policies, but because it loves his stability. He is not a man of many surprises. This week when he restated his campaign promise to raise capital gains taxes, the market didn’t move on the surprise, it moved on the realized anticipation.
Some other things that affected the market this past week:
- Long-term bond rates, which shifted from a gradual climb to an accelerated one in early 2021, did an about-face due to the Fed Chair Powell’s consistent, patient approach to monetary policy. Giving investors confidence that the Fed won’t push rates up too quickly.
- Demand for Treasuries has increased recently as their yields have been increasing. When comparing fixed rate investment options, they are finally looking better.
- Mortgage delinquencies declined last month as borrowers used stimulus checks and tax refunds to catch up on their mortgage payments.
- Mortgage forbearance numbers also dropped last month and an increasing speed as homeowners cure their debt through deferments, payment plans, restructuring or when all else fails, selling!
The 10Y Treasury ended Friday on the 50 day moving average which it has not broken below for a very very long time, so I am not holding my breath that rates will improve much more. So don’t wait to lock in a rate, “now” continues to be the best time.
Are You Seeing More Appraisals Come In Low?
Fairway Mortgage uses Frisco Lending Services (FLS) as our appraisal management company. Like many lenders, we have a panel of preferred appraisers to support you and your clients. As the market took off and buyers were paying anything they dared in order to win a deal, appraisers shockingly kept up.. mostly.
Fairway’s national number of appraisals coming in low was 11%. That number jumped to 20% for April nationally. Here in Denver, first quarter was 15.5%. April month to date is 27%. Each closed deal that started out at one price and finished at a much higher price set the new floor for the next home sale. Are appraisers now finding it harder to keep up? Buyers and Realtors know they have to be all in, this just acts as a reminder to set proper expectations.