December 31, 2013 Real Estate Report - New Year -- New Hope

It has been five years since the depth of the recession was upon us. For five years we have been recovering. The recovery has been painful and slow with many starts and stops. Yet, as we approach 2014 there seems to be more optimism regarding the status of the economy recovery and our future. Some of this optimism is rooted in facts and some of this optimism comes from sentiment. First the facts. For the first time in five years, the real estate market participated and is contributing in the recovery. When homeowners feel wealthier because of rising home values, the entire economy benefits. It is no coincidence that the economy grew at stronger pace in each of the past four quarters--including a robust 4.1% growth rate in the third quarter. Employment growth has picked up and this job growth is picking up within a variety of sectors--including state and local governments -- which is a sector that was laying off tens of thousands just a few years ago. About those feelings. For a long time we have been saying that this was a crisis of confidence. Confidence is a feeling. In general, we can see that consumer confidence is rising as the year draws to a close. There is even hope that Congress is starting to show stronger levels of bi-partisanship -- which is a good thing with the debt limit issue about to hit in the first quarter of 2014. Confidence allows people to make important decisions such as getting married and starting a family. Here is to a great New Year for all--and hoping the growth in good feelings continue for all of 2014! Keith Stewart 773-529-7000 www.ChicagosMortgageChoice.com

December 24, 2013 Real Estate Report - The Fed Speaks -- Holiday Cheer?

Well after months and months of speculation, the Federal Reserve Board finally announced the start of their "tapering" program in which they will reduce the amount of their purchases of government and mortgage-back securities by ten billion dollars per month. Starting in January, the Fed will purchase $75 billion dollars monthly instead of $85 billion dollars. This program was instituted during the financial crisis both to keep long-term rates lower and provide some stability in a mortgage market which was devastated by the crisis. By lowering the amount of purchases, the Fed is officially proclaiming that America is well on the road to recovery. This does not mean that the Fed is about to raise interest rates. What it means is that the Fed will be exerting less influence over long-term rates which are of utmost importance to consumers because fixed-rate home loans are influenced significantly by the direction of long-term interest rates. The Fed has been going out of its way to say this does not mean that they are ready to raise short-term rates. The Fed has emphasized its commitment to keep short-term interest rates "exceptionally low" until either the unemployment rate falls to around 6.5% or the inflation rate exceeds 2.5% a year. Why is this good news for the Holiday? Well, the stock markets rallied decisively on the news. The economy is recovering and this is a good thing. Long-term rates rise when the economy is stronger. This is especially the case when rates are bouncing back from the lowest point in history. But rates are still very, very historically low. And this is good news for homeowners because a stronger economy will translate into more buyers and this will cause the positive cycle to continue. All in a low rate environment. So, we have something to celebrate. Keith Stewart 773-529-7000

What Does a Better Job Market Mean?

Last month we printed a quote from a Federal Reserve Study. This study indicated that the economy was poised to start producing more jobs. While many were skeptical regarding this prediction, the October and November jobs reports indicate that this speculation was right on point. The economy has produced just over 200,000 jobs per month during the past four months while the previous four month average hovered around 160,000 per month. Not only has the jobless rate dropped to 7.0%, but initial claims for unemployment benefits have moved below 300,000 for the first time since the recession started. Though in the past week, they bounced back significantly most likely due to the timing of the Thanksgiving Holiday. There are some evidence that the pick-up is still lackluster when you consider how many have left the workforce and the quality of jobs created; however, there is no doubt when you put all the numbers together, the job creation machine is steadily improving. The next question is--what does that mean for the economy? The economy improves as the job market improves. It is that simple. People who are working spend more money. More importantly, they make long term decisions such as setting up households, purchasing cars, homes, furniture and undertaking home improvements. For example, it is no coincidence that car sales in November hit their highest level since 2007. A better economy comes with costs. This week the Federal Reserve meets and considers whether to lessen their stimulus efforts. Already interest rates have been increasing for the past six months in anticipation of this move. Most speculate that the Fed will not move until early next year and if jobs creation continues to improve, this prediction may become a certainty. News that Congressional budget negotiators have reached a preliminary agreement has heightened concerns that the move may come sooner because of a reduction of the threat of another government shutdown. Keep in mind that the Fed does not control long-term rates and if the markets feel the Fed should let rates rise, they are likely to rise no matter what action the Fed takes. The bottom line? The good news we are seeing in the employment sector is likely to end the run of good news we have seen with regard to record low rates. That does not mean that rates are likely to be high enough to make owning homes and cars unaffordable. There are still a lot of bargains out there. We just don't know how long they will last. Keith Stewart 773-529-7000

December 10, 2013 Real Estate Report - Can House Prices Rise as Sales Slow?

Here is an interesting picture. The S&P/Case-Shiller House Price index showed prices in the 20 largest cities increased 13.3 percent annually in September, the highest year-over-year increase since February 2006. Yet, existing home sales have slowed a bit and pending home sales have been lower for several months, according to the National Association of Realtors. How can home prices be rising at a time in which home sales are slowing down? The answer is found in two important numbers. For one, the percentage of distressed sales is falling as the foreclosure inventory shrinks. LPS reports that the foreclosure inventory is down 30% over the past year. Since distressed homes sell at a significant discount over non-distressed sales, it makes sense that the average sale price is rising. During the height of the housing crisis, the flood of foreclosed homes exaggerated the drop in home prices and on the way out of the crisis, the rise in home prices is now exaggerated by the lower numbers of these sales. Secondly, we still have a lack of inventory in many markets, especially at the lower end of the market. Housing sales are being held back because of this lack of inventory but at the same time we are not seeing slower housing sales cause downward pressure on prices. If there is more demand than supply, prices will be stable or rise regardless of the number of total sales. What does this mean for the future? If demand continues to rise, housing prices will continue rising or at least stabilize. The first factor -- distressed sales --- will become less of a factor in the future as we approach normalized levels of distressed sales. The key is demand. If the economy continues to produce jobs at a decent rate, then we will have a greater demand for the real estate market. That is what makes November's employment report interesting. Heading into December we had a series of numbers which pointed to a stronger jobs market, including the lowest number of first time claims for unemployment benefits since before the recession started and a strong October employment report. This made the markets optimistic before the numbers were released. And the numbers did not disappoint as the economy once again created more than 200,000 jobs and the unemployment rate dropped to 7.0%. Keith Stewart 773-529-7000

December 3, 2013 Real Estate Report - The Muddled Oil Picture

We find it kind of interesting that the stock market continues to hit records at a time in which oil prices are moderating. Conventional wisdom tells us that the stock market rallies when the economy is getting stronger. A stronger economy causes higher demand for energy. That would cause oil and gas prices to rise. Yet, in August oil prices pushed to approximately $110 per barrel and by the middle of November, they had receded to below $95.00 per barrel. In the meantime, in the middle of November stock prices hit record levels again. Why the disconnect? Some of the drop in oil prices could be associated with the uncertainty which accompanied the government shutdown -- however the stock market did not seem to be affected by the shutdown and oil prices did not rebound when the shutdown was over. There are also seasonal factors. We got through the hurricane season without any major storms which could have damaged our ability to produce oil. Finally, the progress towards the Iranian nuclear agreement also weighed in on oil prices. On the other hand, there were some additional important announcements that are affecting the overall picture. The International Energy Agency reported that the U.S. will surpass Saudi Arabia as the top oil producer in the world by 2015. The Administration also announced in November that our oil production is at a 24-year high and our imports are at a 17-year low. The factors for this include both new oil extraction technologies such as fracking and more energy efficient cars. Long-term projections in the IEA report were not as optimistic; however, for now the energy picture is getting better. Why is this important? As the economy grows, if oil prices also increase this causes a drag on economic growth. If in 2014 oil prices stay where they are, consumers will have more money to spend in other areas --from furniture to cars to houses. In other words, if it holds the oil price picture could be very good news. Meanwhile this week we will see another jobs report. This one is sure to be interesting as a follow-up to the surprisingly strong report from the previous month. Keith Stewart 773-529-7000

November 19, 2013 Real Estate Report - Maybe It's Not a Fluke

Maybe It's Not a Fluke Two weeks ago we published a column entitled "Words of Optimism." Last week a surprisingly strong employment report was released. Was this a coincidence or was it an accurate prognostication? We do know that the jobs data can be tricky. What looks strong one month can be reversed the next month as the new month's data is always accompanied by revisions of previous numbers. Thus, we would need to see two or three months of strong jobs reports before we declare a turnaround and a great prediction (or a lucky guess). On the other hand, the words of optimism were based in fact and those facts included the important numbers regarding increased household formulation. As a matter of fact, household formulation and jobs data are clearly linked. As more jobs are created, more households are created as children move out on their own. This demand for housing -- both rental and purchase -- creates more jobs. This relationship created a vicious cycle during the recession. Today it could influence the start of a virtuous cycle in which the economy is buoyed by both factors working together. Again, our thoughts are not just the result of rampant speculation. A recent report by the Federal Reserve Board indicated that the employment rate was set to fall in the coming months -- "Across the board, these indicators show the pace of the labor market recovery has increased compared with a year ago," wrote Mary Daly, the San Francisco Fed's deputy research director, and colleagues Bart Hobijn and Benjamin Bradshaw. "We take this as evidence that the recovery in the labor market is robust, broad-based, and likely to continue, if not accelerate, over the coming months." (Reuters). So, perhaps the surprising jobs report was not a fluke. But we still need to see a few more months of data to really determine if this is the case. Keith Stewart 773-529-7000

November 12, 2013 Real Estate Report - Employment Report

Employment Report A busy week included both an Election Day and a release on the employment numbers for October, as well as numerous additional points of data. The employment report was surprising to say the least with the markets assuming that the government shutdown would have held a lid on hiring during the month while government workers were furloughed. Not only was the addition of over 200,000 jobs more than expected last month, but the previous months' data was adjusted higher as well. Economic data measuring activity in the manufacturing and service sectors also exceeded expectations. This strong data is important with regard to influencing measures of consumer sentiment which had turned lower during the month as the shutdown drama unfolded. From here, stronger consumer sentiment is critical. Why? Because it is shopping season. November is the start of the Holiday Season and market analysts will be at the malls more frequently. Perhaps they will be doing some shopping, but more than likely they will be measuring early data regarding how busy the shopping season will be. Each year, store traffic becomes less important because so many are shopping on line. We are approaching both Black Friday and Cyber Monday in a few weeks. Though the word is that many stores will be open on Thanksgiving Day and perhaps Black Friday will become Black Thanksgiving Weekend. Certainly on-line shopping is open on Turkey Day so why not the stores? Well, those who have to work Thanksgiving Day certainly will not be thrilled -- unless they don't like turkey and football. Let the games begin! Keith Stewart 773-529-7000

Real Estate Report - Election Day - November 5, 2013

Today is Election Day. With all the partisan issues we have had over the past few years, we do understand that many Americans are turned off by politicians. Plus today's Election Day does not focus upon national races such as the President and Congress. We believe that exercising your right to vote is what makes our nation great. And the people who are elected in local and state races are those who will be running for Congress in the not too distant future. In essence, this is our chance to stock up the "farm system" (baseball term) for a stronger future. Thus, even though off election years tend to have low participation rates, we believe that these years may even be more important for ours and our children's futures. Meanwhile, we are on data overload as our government gets caught up on economic data releases delayed during the shutdown. Two things about these releases. First, we are not sure if they are as accurate as usual. Second, weaker data released may be temporary due to the effects of the shutdown. For example the release regarding consumer confidence absolutely showed sagging confidence as a result of the shut down. The real story will be told after this data clears and we see how the consumer rebounds. A consumer rebound is all-important especially because of the time of the year. Yes, the Holiday shopping season is here. This season accounts for the results for many companies during the year. So we would like to wish you Happy Election Day and a great start to the season of purchasing! www.ChicagosMortgageChoice.com

Expanded HARP Refinance Eligibility

Fannie Mae and Freddie Mac have announced expanded eligibility for refinancing under their Making Home Affordable refinance program HARP. The expanded parameters allows for loans “Closed” (note date) prior to May 31st 2009 and currently owned by the agencies to be included in the program. The previous program required that your loan must have been “purchased” by Fannie and Freddie by May 31st 2009. Homeowners that had closed for example in February 2009 may not have yet been sold to the agencies and therefore NOT eligible. If your current loan closed prior to May 31st 2009 and your were previously not able to refinance under this program, you may now be eligible. There are also more options available to allow for higher LTV’s, (in some cases unlimited), transfer of existing PMI insurance, as well as condominiums that were previously not allowed. If you have been previously unable to refinance under this program and think you may now qualify, give me a call so we can check into it. Keith Stewart 773-529-7000

Short Sale vs. Foreclosure - Fannie/Freddie Waiting Periods

I have recently had several situation develop with Mortgage Servicers inaccurately reporting Short Sales as Foreclosures on credit reports. Per Fannie/Freddie guidelines the waiting period for a Short Sale is 2 years with a Foreclosure being 7 years.
I have had several clients that are 2 years after a short sale with the lenders reporting as a foreclosure. The issue is that the automated underwriting engine will not approve the loan because it sees a foreclosure. A lender can "Manually Underwrite' the file with documentation to support a short sale. The problem is that no lenders will manually underwrite and approve the loan leaving the borrower with having to get the lender to change the credit report. This could be a very tedious task to say the least. As of now, there is no code for a lender to distinguish between a Short Sale or a Foreclosure. Hopeful this will change in the future.

If you are having an issue with this give me a call.

Keith Stewart

773-529-7000

Sequestration

Only in America would we desecrate the English language to find a word to describe what our government is up to. Yes, March 1 is the official sequestration date. But don't expect the government to declare the next Federal Holiday to be "Sequestration Day." Here are a couple of points about this word. First of all, the word sequestration means confiscation or seizure of assets. No one is proposing a seizure of assets here. What we are talking about is automatic and severe budget cuts. In this case we will defer to the Congressional Research Service which has rewritten the dictionary to expand the definition to mean... the permanent cancellation of budgetary resources by a uniform percentage. Moreover, this uniform percentage reduction is applied to all programs, projects, and activities within a budget account.
Okay, now that we know what it means, the questions that follow are... will it happen and if it does happen, what affect may it have upon our lives and especially the economy? There have been many articles written regarding what could happen if the budget is cut by approximately 10% overnight. These cuts include all discretionary spending from jobless benefits to food inspections to defense. Not all cuts would happen immediately. For example, if there are furloughs of Federal workers, we have read that the furloughs may take 30 days or more to implement. That gives Congress and the Administration more time to come up with a solution. And you know what they do when they have extra time? Usually nothing. There is no doubt that dropping hundreds of millions of dollars out of the budget will take some steam out of the economy this year. This could lead to lower rates and oil prices. We just don't think that the cuts will be allowed to take hold all year. With a compromise of some kind, there will be some cuts, but how much remains to be seen.

www.ChicagosMortgageChoice.com

The Numbers Don't Lie

This week the markets were focused upon the all important employment report. While the number can be volatile from month-to-month, the dip in first time unemployment claims during the previous two weeks made the markets more optimistic regarding January's numbers. They came in at a lackluster 157,000 jobs created for the month with an unemployment rate of 7.9%. These numbers were worse than expectations; however, a revision of previous data added over 300,000 new jobs to the data previously released in 2012. The numbers don't lie. There have been additional reports released recently that show the economy is growing more quickly. For example, the December orders for durable goods were much higher than expected. Preliminary numbers indicated that the growth of the economy stalled in the fourth quarter, but this pause was attributed to temporary factors such as the weather according to commentary by the Federal Reserve released after the Fed meeting ended on Wednesday.
As we have pointed out in the past, a growing economy is great news. But it also means that we can expect higher prices to join the party. It is not a coincidence that home prices rose last year. More recently, oil prices are up around ten percent and interest rates have begun creeping up as well. All along we have warned that the Federal Reserve Board has no power to keep rates low in a stronger economy. Nor would they want to. There was more drama regarding the Fed meeting this week for this very reason and rates eased a bit when the Fed indicated they are continuing their support for low rates. Meanwhile, it is expected that those who have been on the sidelines may very well recognize that this is their last chance to purchase a home which is on sale. Rates and home prices are up slightly, but they are currently still a bargain. If the numbers keep rolling in like they have, this fact may no longer be the case.

Keith Stewart
www.ChicagosMortgageChoice.com

Deduction for Mortgage Insurance Premiums for filers making below $110,000 is extended through 2013 and made retroactive to cover 2012

Real Estate Provisions in “Fiscal Cliff” Bill

On Jan. 1 both the Senate and House passed H.R. 8, legislation to avert the “fiscal cliff.” The bill will be signed shortly by President Barack Obama.

Below are a summary of real estate related provisions in the bill:

Real Estate Tax Extenders

• Mortgage Cancellation Relief is extended for one year to Jan. 1, 2014

• Deduction for Mortgage Insurance Premiums for filers making below $110,000 is extended through 2013 and made retroactive to cover 2012

• 15 year straight-line cost recovery for qualified leasehold improvements on commercial properties is extended through 2013 and made retroactive to cover 2012.

• The 10 percent tax credit (up to $500) for homeowners for energy improvements to existing homes is extended through 2013 and made retroactive to cover 2012.

Permanent Repeal of Pease Limitations for 99% of Taxpayers

Under the agreement so called “Pease Limitations” that reduce the value of itemized deductions are permanently repealed for most taxpayers but will be reinstituted for high income filers. These limitations will only apply to individuals earning more than $250,000 and joint filers earning above $300,000. These thresholds have been increased and are indexed for inflation and will rise over time. Under the formula, the amount of adjusted gross income above the threshold is multiplied by three percent. That amount is then used to reduce the total value of the filer’s itemized deductions. The total amount of reduction cannot exceed 80 percent of the filer’s itemized deductions.

These limits were first enacted in 1990 (named for the Ohio Congressman Don Pease who came up with the idea) and continued throughout the Clinton years. They were gradually phased out as a result of the 2001 tax cuts and were completely eliminated in 2010-2012. Had we gone over the fiscal cliff, Pease limitations would have been reinstituted on all filers starting at $174,450 of adjusted gross income.

Capital Gains

Capital Gains rate stays at 15 percent for those the top rate of $400,000 individual and $450,000 joint return. After that, any gains above those amounts will be taxed at 20 percent. The 250/500k exclusion for sale of principle residence remains in place.

Estate Tax

The first $5 million dollars in individual estates and $10 million for family estates are now exempted from the estate tax. After that the rate will be 40 percent, up from 35 percent. The exemption amounts are indexed for inflation.

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