Mortgage Rates Basically Unchanged Today

Mortgage rates were basically unchanged today as it was a big day for tax cuts.  Trump out with a little more detail about his plan. It was already known he wants corporate taxes cut from 35% to 15% but this afternoon it was added that he wants personal tax levels cut from seven to three - the highest personal rate at 35% and then 25% and 10%. The reactions spread around, not all Republicans are on board yet as Paul Ryan and many Republicans continue to worry about the increase in the federal deficit while Dems are saying the plan as broad as it is having been “rushed” and needs more thought. This is the first step in what will take most of this year to resolve. Trump’s people believe it can be paid for because it will increase economic growth that will offset the intended cuts. Hmmm…..  I have a piece of ocean view property just outside of Reno, Nevada also for sale. 

The need for a major tax reform is long overdue and should be done with bi-partisan support but in this political environment there is no chance in hell that will happen, so if passed in whatever form, it will increase the deficit and will only work for 10 years. A wonderful idea about reducing the federal deficit but it will require a huge increase in US GDP growth. Like Wimpy says - I will pay you Tuesday for a hamburger today.  

Trump is proposing to repeal a provision of the tax code that allows individuals to deduct the state and local taxes they pay from their reportable income. That will hurt residents of high-tax states such as New York, New Jersey and California and spur objections from some Republican lawmakers in those states. That in itself will make it hard for Democrats to swallow. Mortgage deductions will stay and also charitable contributions - both are costly for the government and there are more than a few in Congress that have floated getting rid of the mortgage deduction.

This is step one of what will occupy politicians and markets through the rest of this year. Some talking about getting it passed in four months, not very likely in its present form.

The initial reaction in the bond and mortgage markets was seen with the 10yr declining to 2.30% where it closed and an increase in MBS pricing.  There was no noticeable reaction in the equity markets, as it seems after two strong days, investors are taking a breather but indexes did end a little better.  

In summary, financial markets idled in place today till the big tax news, and now that it has come and gone, I am hopeful that the bond sell off has ended on what we saw towards the end of the day.   Just holding ground at current levels should allow banks to give back tomorrow, so right now, let’s see what happens.