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