Tuesday, May 15, 2018

Chicago's Mortgage Choice - May 15, 2018 Real Estate Trends - Another Milestone

The economic recovery recently hit an important milestone. It is now officially the second longest expansion in our history. For much of the expansion, the recovery has felt more painful than others. For one, the Great Recession was extremely deep and painful. Therefore, most Americans needed a long-term for their personal recovery from the recession. Secondly, the recovery was quite slow. Sometimes it was so slow it did not seem like a recovery at all. On the other hand, the slow pace of the recovery brought some major advantages to the equation. Interest rates were able to remain low for a longer period of time. We had a sale on money that has lasted most of the previous decade. Additionally, the long life of the recovery can be attributed to the fact that the economy has not overheated during the recovery. Overheated economies bring inflation and rapidly rising interest rates which can turn the economy south in a hurry. Even as rates have risen in the past two years, it has been a slow and gradual process. As a matter of fact, long-term rates have taken their time to react to the Federal Reserve Board's short-term rate hikes. Of course, the next question is--how long will the recovery keep going? We know it can't last forever. Our hope is that when the recovery does pause, it does so in a very mild way, in contrast to the last recession. For now, the old guy is just trudging along. Keith Stewart 773-529-7000

Tuesday, May 1, 2018

Chicago's Mortgage Choice - May 1, 2018 Real Estate Report - Economic Sweeps Week

The jobs report is the most intensely watched of all monthly economic releases. As far as events are concerned, meetings of the Federal Reserve's Federal Open Market Committee (FOMC) stand as one of the most important events as well. To have them both happen in the same week is somewhat of an anomaly. This week, we will get the pleasure of experiencing both happenings, and it will certainly portend to be an interesting week for market-watchers. The first question is -- will the Fed hike interest rates again at their meeting? We have had increases in December and March, which means that a hike at this meeting is not a certainty. Most observers expect another two to three increases this year and if the Fed holds off this month, a schedule of two additional increases may be slightly more likely. Either way, market watchers will be analyzing the Fed statement for clues regarding the likelihood of future increases. One thing is for sure, the Fed will be watching Friday's jobs report closely, especially after the initial estimate of economic growth in the first quarter came in a tad higher than expectations last week. While employment growth has been very steady overall, there has been volatility from month-to-month. February's numbers were much higher than expected and March's numbers were lower than forecast. Thus, the markets and the Fed will be observing whether this month breaks in one direction or the other -- or perhaps the numbers level out. As always, the Fed will also be paying close attention to the numbers reported on wage growth, an important indicator of the potential for inflation. Keith Stewart 773-529-7000

Tuesday, April 24, 2018

April 24, 2018 Real Estate Report - The Impact of Trade Battles

There seems to be a lot of rhetoric going back and forth on the topic of trade wars. Much of this debate centers upon the question of whether we are in a trade war or not. We can't answer that question definitively, but certainly we do understand that some of the basic characteristics of a trade war have been implemented and others have been threatened. We have imposed tariffs on other countries' goods and they have done the same to our goods. The important question is not whether this is a full-blown trade war, but what is the impact of the implementation of tariffs? In the short run, we have seen one major impact -- the stock market has become very volatile. As we have previously discussed, this volatility is caused by more than one factor. However, the risk of trade wars certainly is playing a significant part in contributing to volatility. Why are the markets uneasy regarding these tariffs? For one, tariffs raise prices to our consumers. On the other side of the equation, when other countries retaliate against our goods, it hurts the producers of these goods -- from manufacturers to farmers. These two factors can actually balance each other out. For example, higher prices contribute to inflation which can bring higher interest rates. On the other hand, lowering exports can hurt certain sectors of the economy and that might bring rates down. Which side of the equation might win out? It is hard to tell. We actually hope that these "shots being fired" are precursors to the negotiation of better trade agreements that will benefit all parties. In the meantime, there will be some negative impacts and certainly a lot of noise. Keith Stewart 773-529-7000

Tuesday, March 20, 2018

Chicago's Mortgage Choice - March 20, 2018 Real Estate Report - The Fed Meets Today

The Federal Reserve Board's Open Market Committee meets today and tomorrow. While the vast majority of the world will be going about their business, thousands of financial analysts will be on the edge of their seats trying to determine what the Fed's direction will be. Like all Americans, they are concerned that the Fed will raise short-term rates. However, this action would not be unexpected, and thus it is not the top concern of these analysts. They are more concerned about what the Fed will say about the future. The markets have already built-in two to four rate increases this year into their thinking. But there is a big difference between two increases and four. Market rates have already moved up in anticipation of these rate hikes. Any talk of accelerating inflation from the Fed and the markets could become amped up further. If the Fed indicates that they remain on a slow and steady path of rate increases, we might see the markets calm down a bit. For the most part, the economic news leading up to the meeting does not seem to indicate an overheating economy -- except for last month's jobs report. Existing home sales are constrained due to tight inventories, personal spending increases have been moderate and so has manufacturing growth. A slow and steady expansion actually could be the best news for all concerned, as we would see continued job gains without rates moving up to a point in which the economy starts to be adversely affected. Keith Stewart 773-529-7000

Tuesday, March 13, 2018

March 13, 2018 Real Estate Report - The Jobs Machine Hums

The wild year has continued with regard to volatility in the markets, political headlines and, sadly, national tragedies. Through it all, we have seen three patterns emerge. First, the volatility has been focused mostly in the stock and bond markets. Stock gains were some of the strongest in memory in January and the losses in February came close to wiping out those gains. The bond market has been weak, and this has led to higher long-term interest rates. Secondly, we have seen an economy which has continued to strengthen, but not overheat. There is no longer talk of the lack of inflation being a threat to growth. But, on the other hand, inflation has not been a major issue either. Lastly, up until now, jobs growth has been rather steady. Other than a hiccup late last year due to the devastating storms we had during the hurricane season, our jobs growth has been holding at a strong enough level to keep unemployment low. February's job report saw this trend grow stronger with 313,000 jobs added. The unemployment rate remained at 4.1%. With regard to wages, the story there showed no acceleration of wage growth. Overall this report was viewed as good news. For those waiting and wondering what the Federal Reserve Board's Open Market Committee will do with interest rates next week when they meet, the consensus is that this report will not change the odds much that the Fed will increase rates. Nothing is a certainty, but if you listened to the Congressional testimony of the new Chairman, Jerome Powell, a rate hike this month is definitely a strong possibility. Keith Stewart 773-529-7000

Tuesday, February 20, 2018

February 20, 2018 Real Estate Trends - The Wild Ride

We are dedicated to helping Americans achieve and maintain the American Dream of Homeownership. Our commitment is to provide the highest quality service while working to help our clients achieve their financial objectives within the real estate process. We are proud of our work that has made us the area's company of choice for so many working towards their long-term goals. February 20, 2018 The Wild Ride Several weeks ago, we spoke about the negative effects of economic growth. The two factors we cited were higher interest rates and higher oil prices. Now we are starting to see the markets react to this new reality. Many are blaming rising interest rates for causing what we can now call a stock market correction. A correction which we have not seen for some time. Why would higher rates cause stocks to falter? Abnormally low rates have propped up the markets for years. Why keep your money in the bank earning 1.0% interest when you can earn 10% or more in the stock market? That is an over-simplification, but certainly higher rates are taking some of this extra stimulus out of the equation. Not that rising rates are the only explanation with regard to the trepidation in stocks. As we also explained several weeks ago, the tax plan was great news for stocks because it immediately made companies more profitable by lowering their tax rates significantly. Stocks have been rallying for nine years, comprising the second longest bull market in history, but the rally intensified in anticipation of the tax plan. We surmised that all the good tax news was already built into stocks, but the rally continued anyway -- until rates started rising. The question now is whether this is just a healthy and long-overdue correction which may reverse quickly, or is it the beginning of the end for the bull run? As always, we will stay away from predictions. Rates could ease back down or stabilize -- and the market could climb back. Right now, the economy is healthy and rates have not risen far enough to cause the economy to pause. Actually, if the growth eased a bit, this could cause the Federal Reserve Board to be less concerned with inflationary pressures and perhaps permit them to take their foot off the pedal. For now, we have a pretty wild ride going on. A government shut-down has been averted and the compromise has produced good news for real estate. The two-year, $400 billion spending deal came as a result of a bipartisan group of lawmakers supporting the agreement. Congress now has until March 23 to write the legislation to accompany the spending deal that will fund the government for the rest of the fiscal year. The National Association of REALTORS® fought and achieved a number of wins for real estate, including a temporary extension of federal flood insurance and extension of NAR-backed tax provisions. Here are the details: • Flood insurance. The National Flood Insurance Program has been extended until March 23, giving lawmakers time to work out an extension that could last until September 30. The deal also adds $27 billion in mitigation and resiliency funds to address issues arising from last year’s hurricanes, and it makes $12 billion available under the Community Development Block Grant program to fund U.S. Army Corp of Engineers flood mitigation projects. • Extension of tax provisions. The deal retroactively extends provisions for the 2017 tax year for mortgage debt forgiveness; mortgage insurance premiums and energy efficiency improvements in commercial buildings. • Tax Credit. The nonbusiness energy property tax credit applies to ten percent of the amount paid for qualified energy efficiency improvements such as energy-saving roofs, windows, skylights, and doors, and 100 percent of that paid for qualified energy products, such as high-efficiency water heaters, air conditioning units, and furnaces. Source: REALTOR® Magazine Existing-home sales in 2017 surged to the best year for sales in 11 years, the National Association of Realtors® reported. Total existing-home sales—which include completed transactions for single-family homes, townhomes, condos, and co-ops—rose 1.1 percent in 2017 to a 5.51 million sales pace. The sales pace surpassed 2016’s 5.45 million, which had been the highest pace since 2006. End-of-the-year sales numbers were overcast somewhat by a slower sales pace in December. Existing-home sales decreased 3.6 percent in December month over month to a seasonally adjusted annual rate of 5.57 million. “Existing sales concluded the year on a softer note, but they were guided higher these last 12 months by a multi-streak of exceptional job growth, which ignited buyer demand,” says Lawrence Yun, NAR’s chief economist. “At the same time, market conditions were far from perfect. New listings struggled to keep up with what was sold very quickly, and buying became less affordable in a large swath of the country. These two factors ultimately muted what should have been a stronger sales pace.” The median existing-home price for all housing types in December was $246,800, which is 5.8 percent higher than a year ago. First-time home purchasers comprised 32 percent of sales in December, up from 29 percent in November. Source: NAR Keith Stewart 773-529-7000

Tuesday, February 13, 2018

February 13, 2018 Real Estate Report - Rate Predictions and Perspective

It is amazing how it seems every year we have predictions that interest rates will go up. And each year interest rates do go up. And then, they go back down. The yield of the 10-year Treasuries have gone up over 0.5% over the past few months. But they also went up just about the same amount during the winter of 2016-17. Similar rises were witnessed in 2015 and 2014, though the patterns were slightly different. Each time, rates came back down. If we look at this pattern, we can conclude that rates are likely to come back down again, right? Not so fast. There is one intervening variable that occurred this year, as opposed to previous years. That variable is the tax legislation. Tax reform is designed to stimulate economic growth. In previous years, rates came back down because our economic growth never became too strong to ignite inflation. Nor did rates move high enough to scare the stock market into a correction, as has happened in the past week -- not that stocks were not due for a correction after so many years of increases. Some say that the Federal Reserve Board raising short-term interest rates makes higher long-term rates a certainty. But, we must remember, the Fed raised rates in 2015 and 2016, albeit not as quickly as 2017. In 2015 and 2016, the Fed was "normalizing" rates because the economy had stabilized. Now the economy is growing, and we have added a major stimulus. Rates are not rising because the Fed is raising rates, rates are rising because the markets and the Fed expect further economic growth. That being said, it is still impossible to predict the future of economic growth or rates. On the other hand, if you feel this is the last opportunity to take advantage of historically low rates, you may want to act accordingly. Keith Stewart 773-529-7000