August 22nd, 2022 2:39 PM by Richard Sardella MLO.100007700/NMLS 233568
New law aimed at reducing effects of inflation aims to make it more cost-effective to go green
In case you haven’t been paying attention to headlines about what’s going on in Congress, there is this little thing called the “Inflation Reduction Act” that recently passed both houses of Congress and was signed into law — evidently to the surprise of politicians on both sides of the aisle. While it may contain items that don’t benefit or even agree with everyone, it does contain good news for homeowners who have already made or are about to make energy-efficient improvements to their homes.
The new law includes about $900 billion in spending and tax cuts, with $369 billion to fight climate change and fund green energy projects, including home upgrades, according to Realtor’s Kathleen Willcox. “For homeowners, this means that going green at home can be as much about saving green as it is about saving the planet,” she says.
With climate threats increasingly looming large, many homeowners are looking to perform some critical home projects, but materials costs have become prohibitive. The tax incentives contained in the new legislation, however, can help homeowners with the types of home improvement tasks that support energy savings and environmentally sustainable homeownership. “The act delivers savings on both large and small-ticket green home improvements,” says Willcox, who adds that the new legislation is set to provide $1.6 billion in potential tax savings for homeowners in 2023 alone, up from $253 million in existing credits in 2022. It delivers a 30% federal tax break for rooftop solar installations for 10 years, for one example, but also provides savings of up to 30% on other household amenities, like heat pumps. And there are several other smaller-scale improvements that homeowners can finance through the program as well.
Those who purchase an Energy Star single-family new home can receive $2,500 in tax credit, while those buying a home that meets the Department of Energy’s Zero Energy Ready Homes program requirements can gain a whopping $5,000 in tax credit. “The act also allows up to $840 to offset the cost of heat-pump clothes dryers or electric stoves, up to $4,000 for electrical panel upgrades to support new appliances, up to $1,600 for insulation and sealing costs, and more,” says Willcox. The result of some of these changes can be ultimately realized in lower energy costs due to increased efficiencies, which will place a reduced strain on power grids and reduce carbon emissions.
What does it have to do with inflation reduction? “The act essentially rewards responsible consumer behavior and incentivizes homeowners who may be feeling the pinch of inflation,” says Willcox. “While it is partly an extension of the Nonbusiness Energy Property Credit, which expired in 2021, it does more.” She goes on to explain how now, in addition to allowing homeowners to claim up to $1,200 a year or 30% of the total cost of eco upgrades at tax time, it also pledges up to $14,000 in rebates for energy-efficient updates. In other words, it’s an invest-more-save-more proposition for homeowners who are looking to add on environmentally friendly and energy-efficient home improvements and equipment, perhaps a nice nod of savings approval for homeowners who are definitely feeling the brunt of rising and unstable prices.
The other surprising element contained in the bill is specifically targeted to home renovations — a rarity in federal bills, according to Willcox. “If you have the cash to front the expenditure on big-ticket items, knowing that you’ll be up for a rebate, then you’ll get more bang for your buck,” she says, citing how the bill has a max rebate of $14,000 per household. This can help homeowners earn a tax rebate for replacing an HVAC system, re-insulating their home, upgrading electrical panels, installing a heat-pump water heater, or installing solar panels on their roof.
Throw in energy-savings upgrades like replacing old, inefficient windows and exterior doors and upgrading to major appliances that meet Energy Star or International Energy Conservation Code standards, and it feels like a win-win for homeowners.
How Rates Move:
Conventional and Government (FHA and VA) lenders set their rates based on the pricing of Mortgage-Backed Securities (MBS) which are traded in real time, all day in the bond market. This means rates or loan fees (mortgage pricing) moves throughout the day, being affected by a variety of economic or political events. When MBS pricing goes up, mortgage rates or pricing generally goes down. When they fall, mortgage pricing goes up. Tracking these securities real-time is critical. For more information about the rate market, contact me directly. I’m among few mortgage professionals who have access to live trading screens during market hours.
Rates Currently Trending: Higher
Mortgage rates are moving slightly higher today. The MBS market worsened by -45 bps last week. This was enough to increase mortgage rates or fees. The market experienced high volatility last week.
This Week's Rate Forecast: Higher
Three Things: These are the three areas that have the greatest ability to impact rates this week. 1) Inflation, 2) The Fed and 3) Manufacturing.
1) Inflation: We get the Fed's key inflation measurement, PCE on Friday. The higher this data set is, the worse it is for rates. Additionally, the bond market will continue to be very sensitive to inflation data and expectations out of Europe.
2) The Fed: We have a large slate of speeches this week as part of the Kansas City Federal Reserve's annual Economic Forum in Jacksonhole, WY. Specifically we will hear from Powell on Friday right after the PCE data hits.
3) Manufacturing: Last week we had a mixed bag for manufacturing data. This week we will get the flash PMIs along with Durable Good Orders and the Richmond Fed Mfg.
This Week's Potential Volatility: High
This morning markets are under pressure due to international news and inflation worries. Volatility has started at moderate levels but will spike whenever the Fed speaks and on PCE data.
If you are looking for the risks and benefits of locking your interest rate in today or floating your loan rate, contact your mortgage professional to discuss it with them.
Richard Sardella has been actively managing and providing services in the mortgage industry for over 30 years. Richard serves on the board of directors as President of Colorado Home Mortgages Inc.
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