December 2, 2014 Real Estate Report - Polar Vortexes and Predictions

We have had some pretty optimistic projections recently from economists. For example, the following is from the Wall Street Journal's monthly survey of economists ...Faster job growth and stronger consumer confidence are already putting the U.S. expansion on a steady trajectory heading into 2015 and falling energy prices are offering another boost... While we share this enthusiasm, we also must remember that absolutely the same predictions were made at the end of last year. What happened? It was the weather. By the time America dug out from all the snow, it seemed the economy was playing "catch-up" all year. Well, the weather this November reminded us how important Mother Nature can be. Just ask Buffalo, the recipient of five to eight feet (that is feet, not inches) in a week. Of course, we are hoping that winter is over in December and it is not just starting! On the other hand, the weaker start to the economy was not just about the weather. The real estate recovery also took a pause in 2014. The early bad weather hurt, but in reality slower real estate sales were not just about a weaker market. The real estate statistics were pumped up previously by investors buying foreclosures -- many times in bulk. As foreclosures have decreased, so did these sales. Meanwhile, real estate sales have been increasing steadily during the second half of the year despite the loss of this segment of the business. In essence, the market is normalizing and we fully expect that the first time homebuyer will again replace the investor as the most important segment of the real estate market. It will take some time, but the fundamentals are in place. Meanwhile, this week we get another important reading on the employment sector. This will tell us if we will continue to have momentum heading into the new year and whether the Polar Vortex is providing another temporary respite from the recovery. Keith Stewart 773-529-7000

November 25, 2014 Real Estate Report - Happy Thanksgiving

It is hard to believe that another year is just about to pass, but the end of the year holidays are already here. It has been an interesting year. We began with one of the harshest winters ever to hit the United States and it seems as if we are ending the year with the same weather pattern, as the "polar vortex" hit much of the nation in the middle of November. It is interesting that the cold weather hit the same week that there was an announcement of a climate deal between the U.S. and China. How can there be global warming when the weather is so extraordinarily cold? Well, we can't get into the scientific arguments regarding the debate, but we will note that one of the effects of global warming is supposed to be more extreme weather, including precipitation. And these extremes did affect our economy this year. So, we will not be thankful for the colder weather and extreme storms, but we will be thankful that the economy has moved forward in spite of these obstacles. As a matter of fact, the last employment report was the best evidence that we have had that the economy is getting better. Why do we believe that? Well, the numbers were assessed as disappointing. We think that we have come a long way in order for a month in which the unemployment rate went down and we added over 200,000 jobs to be labeled disappointing. Just five years ago the economy was losing 200,000 or more jobs per month and the economy has not averaged 200,000 jobs growth per month since before the recession. Sure, there are disappointing statistics associated with the report. There is still a low labor force participation rate and stagnant wage growth, which means that many of the jobs being created are lower paying. However, the solution to both of these problems is the creation of more jobs. When there is a shortage of labor, then wages will increase. And if 200,000 jobs added per month is our "low-point" for the next year, there will be plenty of jobs created which will help these numbers. And continued low interest rates and falling oil prices are two additional things to be thankful for with regard to the economy. Yes, things are not perfect, but when you compare where we are today to five years ago, we are in a much better position to move forward with regard to a healthy economy. If it doesn't snow all winter! Keith Stewart 773-529-7000

November 11, 2014 Real Estate Report - Veterans Day

The election is over. The October employment report has been released. But these important events should not obscure the real importance of this week. Today is Veterans Day, the day we give homage to those who have served our country by defending our freedom throughout our history. We only need to look at what is happening in the Middle East to be reminded as to how important those who have served are to each and every one of us. Many don't realize how extensive the population of veterans is in this country. There are well over 20 million veterans and active military, comprising approximately 10% of the adult population of the United States. For those in business, this makes veterans a very important demographic. For example, did you know that over 15% of the new home sales in the United States are being financed through the Department of Veterans Affairs VA Loan Program? Veterans also own around 10% of all U.S. businesses and have an income which is approximately $10,000 higher than the average American. So, we should not only thank veterans for serving, but also as veterans come back from overseas, helping them assimilate into society is not only the right thing to do, it makes great business sense. Of course, we could not completely ignore the events of last week. As for the election, the results are important because we will no longer have a "divided" Congress; however, this does not mean that all gridlock will be removed. The employment report was also newsworthy, as this report followed our strongest month of job creation in quite some time. The numbers released Friday were slightly below forecast, but were still strong and included an upward revision of the job gains for the previous month. Plus, the unemployment rate moved down to 5.8% while the labor force participation rate increased slightly as well. All in all, a report that shows the jobs recovery continues to be on track. Keith Stewart 773-529-7000

October 28, 2014 Real Estate Report - Happy Holidays

It must be the holiday season with so many gifts coming in. What else could explain good economic news combined with lower interest rates and lower oil prices? Even though the stock market is retreating, keep in mind that the Dow was below 12,000 approximately three years ago. Three years ago the unemployment rate averaged just over 8.0% and it is now just below 6.0%. Initial jobless claims were in the vicinity of 400,000 per week and now they are consistently below 300,000. We mentioned last week that it is surprising that rates and oil prices would fall in the face of relatively good economic news. As surprising as it is--we are going to advise you not to look a proverbial gift horse in the mouth. We are going to advise you to enjoy the lower rates and lower gasoline prices for as long as they last. That might be a few days, a few weeks or a few months. Or the markets might reverse themselves by the time you read this commentary. We do believe this week's meeting of the Federal Reserve Board's Federal Open Market Committee will be very interesting. The Fed is going to be reading signs of economic recovery with no inflationary pressures. They are also going to be feeling the worldwide turmoil going on and speculating whether events overseas will affect our recovery. Some are saying that they might extend their bond purchases to keep rates low. We don't think that an announcement of such will be in the cards, but the phrase "considerable time" when referring to future interest rate increases may stay as part of their vernacular. Of course, our speculation is just that -- speculation Keith Stewart 773-529-7000 http://www.newsletterproonline.com/newsletter/originationpro/?newsletter=true&nid=635&uid=9894

October 14, 2014 Real Estate Report - If it is all about jobs, then...

For years we have gone through a tepid recovery from a very deep recession. And all along we have indicated that we don't recover from such an event if Americans are not working. Year after year we waited and waited. Well, the wait is over. The recovery in jobs is more than underway, it has arrived. The average of 220,000 jobs added each month thus far this year -- and the unemployment rate dropping below 6.0% -- is just what the doctor ordered in this regard. This is not to say that we are all the way back. Many of the jobs created have been lower paying jobs, which has held back the pace of personal income growth. In addition, the low labor participation rate tells us that if jobs keep getting created, we will have to absorb many returning to the labor market. On the other hand, the progress we have made will cause a ripple effect throughout the economy. We are on pace to add almost 3 million jobs this year and this will increase consumer spending which will create more jobs. And some of this spending will make the real estate market stronger -- whether it is the purchase of new homes or major renovation projects for existing homes. Already we are seeing the strength in car sales and home improvement projects. But the one area we have not seen strength in this year is within the real estate sector. More recently, we have seen renewed confidence by builders as new home sales have been ramping up. The bottom line is that we can't have a recovery without the creation of jobs and it is the creation of jobs that will bring us a complete real estate recovery. Yes, we still have a long way to go, but if we keep creating jobs at this rate, the road will become a lot shorter. From there, the only question won't be if interest rates will rise -- but when will they rise and how fast. Right now we have the best of both worlds: more hiring and very attractive interest rates. Keith Stewart 773-529-7000

October 7, 2014 Real Estate Report - Nowhere To Go From Here

That is right. We have nowhere to go from here -- and that fact represents good news. Each week the markets watch the first time claims for unemployment to get a reading on the employment numbers. However, that practice may very well have run its course with regard to its importance in the short-term. It is a matter of math. When claims dip below 300,000, as they have for several weeks this year, there is not much room for them to decrease further. A recent article from Bloomberg indicated that we are now at the level of claims not seen since 2006. And there are over five million more people who are participating in today's labor force as compared to 2006. Indeed, during the three previous expansions, weekly jobless claims averaged around 275,000, which is just below this year's low. Again, we have millions more in the labor force now. However, don't think that we have reached full employment. We have plenty who have exhausted their benefits and represent the long-term unemployed. Others are under-employed, which might mean they are employed part-time but desire to be employed full time. Add this to those who are laid off even in a better economy and there is room for improvement in the employment numbers even if the weekly claims do not move down from here. Friday's jobs numbers tell us that we are still headed in the right direction with regard to returning to a healthy labor market and ultimately a healthy economy. Not only did the unemployment rate fall below 6.0% for the first time in six years with the addition of almost 250,000 jobs, but there was a significant upward revision of the previous months' numbers, which means the pause in August was not as severe as we originally thought. When the Federal Reserve Board's Federal Open Market Committee meets later this month, these numbers will be on the table for analysis. Until then, it will be interesting to see if the other economic reports for September follow this stronger trend. Keith Stewart 773-529-7000

September 30, 2014 Real Estate Report - Turning the Corner

If 2014 was a one mile race, we would now be heading down the last lap. It has been an interesting year. We started with a long, cold and snowy winter. We then began to thaw out, and just as the sun started shining, the world seemed to erupt in crisis. But like many obstacles we have faced during the recovery, from natural disasters to fiscal calamities, we seem to move ahead slowly but surely. The big question is, will the last lap feature us gaining speed during the straightaway or will we be hampered by another road block? If the year has been like a one mile race, then the recovery from the recession has been a marathon. Actually, 26.2 miles may not describe the trek we have gone through. But like the year, we are coming into the final lap, though this is a much longer lap. If we gain momentum during the last quarter of the year, we will be able to see, but not reach the finish line. This year we have marked a full five years of recovery, one of the longest recoveries from a recession in history, but also one of the weakest. Many predict two years or more before we can be considered fully recovered, but the last lap of 2014 could change that story. The release of the employment report this Friday will hint of how much speed we will have garnered going into the last lap of 2014. The last report was mildly disappointing but we definitely have seen some momentum built up during the majority of 2014. If the numbers released on Friday include an upward revision of last month's numbers or September's numbers move back towards or over 200,000 jobs added, the one slow report will be seen as nothing more than a pebble in the road instead of a road block. Then we can rev things up and hopefully we don't have a huge snowstorm in November. Can we get a little help, weatherman? Keith Stewart 773-529-7000

September 23, 2014 Real Estate Report - The Fed Transition

The Federal Reserve Board is going through quite a transition. Actually, more than one. The first transition is one of secrecy to transparency. In the past we had to guess at what the Fed was thinking. If they were planning a move, they never wanted to leak the news ahead of time because of what the "anticipation" might do to the markets. Over the past several years, they have transitioned to a more open culture, telegraphing potential moves well ahead of time in order to take that surprise factor out of the equation. The second transition is removing fiscal stimulus from the equation. The financial crisis and ensuing recession was so strong that the level of fiscal stimulus applied was unprecedented -- from record low interest rates to the purchase of hundreds of billions of dollars of Treasuries and mortgages. The Fed has continued to remove the purchase of Treasuries from the equation and they also face the second decision -- when to raise short-term interest rates. Because of the new era of transparency, Chairwoman Janet Yellen has been talking about dates from the time she assumed the seat. At first, talk of raising rates caused the markets to react as long-term interest rates rose. But as time went on, this effect has diminished. We are not sure if that is because of economic concerns, world-wide conflicts which have flared up or because the markets just got used to the message. The latest meeting of the Fed's Federal Open Market Committee took place last week and the statement released told us that while the Fed thinks conditions are improving, they believe rates should stay as is for a "considerable time." In many ways this statement tells us that there is "more of the same" coming from the Fed, at least for now. Keith Stewart 773-529-7000

September 16, 2014 Real Estate Report - Employment Report Analysis

At first blush, it appeared that the jobs report was disappointing. The addition of 142,000 jobs in August was much less than the average of over two hundred thousand for the previous six months. Yet, the day of the report, the stock market reacted positively and interest rates did not fall as expected. What could have caused this "adverse" reaction? To us there are three possibilities. First, the same day as the jobs report, a cease fire was signed in Ukraine. As we have said previously, the world news is over-shadowing our domestic economic news this summer. If the truce holds, this is a positive indicator for the stock market but not necessarily positive for the continuation of lower interest rates. Secondly, the markets may be betting that the lower number of jobs added might be a one-time occurrence. The jobs numbers are often revised in future months and the markets are not likely to get upset over one report. Now, if we get two or three reports below an average of 150,000 jobs each month, this could be worrisome to the markets. Looking at other indicators such as first time claims for unemployment and the ADP private payroll report, there was no indication that the job creation machine slowed down last month. Finally, even if the production of jobs does slow down, the markets may not be too upset. Slower job growth might cause the Federal Reserve Board to keep short-term interest rates lower for a longer period of time and nothing would boost the stock market more than the prospect for a continuation of lower rates. This factor would apply if the production of new jobs does not slow any further from here. As we indicated last week, it is a good sign with regard to how far we have come in our recovery for the markets to now consider over 140,000 jobs created in a month a poor performance. Which of these factors is correct? There could be a bit of truth in each theory. You can bet on the fact that the Federal Reserve Board's Federal Open Market Committee will be considering these possibilities as they meet this week. Keith Stewart 773-529-7000

September 9, 2014 Real Estate Report - Well, Perhaps Not The Best of All Worlds

Last week we spoke with optimism about the fact that the economy is indeed recovering but interest rates are remaining lower than most had predicted for this year. We wondered whether we might actually have the best of both worlds -- at least for a short period of time. However, we have to recognize why rates are so low while the economy is edging its way back to normal. If rates are low because there is no evidence of inflation and the economy is not in danger of overheating, that is a good thing. As long as the economy keeps improving. On the other hand, if rates are down because of the violence which is occurring in several areas of the world, that is another matter. When the world is in crisis, it is not unusual for U.S. Treasuries to be a safe haven for investors. While the effects of low rates are still positive for our economy, we can't actually describe this as a good thing. And there is a connection between the economy and these events. For example, the economic sanctions levied against Russia are already affecting the European economy. During the financial crisis we saw how an under-performing economy in Europe can affect our economy's performance. With regard to our economic recovery, this past week's jobs report gave us evidence that the economy is not about to overheat and thus the Federal Reserve Board is not likely to move on increasing interest rates more quickly than originally anticipated. Wage growth has not been strong enough to contribute to concerns about inflation at this point in time. When you add the aforementioned concerns about world conflicts, it appears the Fed is more likely to keep rates low until sometime next year. On the other hand, the fact that 142,000 new jobs added in a month is now considered disappointing shows how far our economic recovery has progressed over the past year. Keith Stewart 773-529-7000

September 9, 2014 Real Estate Report - Well, Perhaps Not The Best of All Worlds

Last week we spoke with optimism about the fact that the economy is indeed recovering but interest rates are remaining lower than most had predicted for this year. We wondered whether we might actually have the best of both worlds -- at least for a short period of time. However, we have to recognize why rates are so low while the economy is edging its way back to normal. If rates are low because there is no evidence of inflation and the economy is not in danger of overheating, that is a good thing. As long as the economy keeps improving. On the other hand, if rates are down because of the violence which is occurring in several areas of the world, that is another matter. When the world is in crisis, it is not unusual for U.S. Treasuries to be a safe haven for investors. While the effects of low rates are still positive for our economy, we can't actually describe this as a good thing. And there is a connection between the economy and these events. For example, the economic sanctions levied against Russia are already affecting the European economy. During the financial crisis we saw how an under-performing economy in Europe can affect our economy's performance. With regard to our economic recovery, this past week's jobs report gave us evidence that the economy is not about to overheat and thus the Federal Reserve Board is not likely to move on increasing interest rates more quickly than originally anticipated. Wage growth has not been strong enough to contribute to concerns about inflation at this point in time. When you add the aforementioned concerns about world conflicts, it appears the Fed is more likely to keep rates low until sometime next year. On the other hand, the fact that 142,000 new jobs added in a month is now considered disappointing shows how far our economic recovery has progressed over the past year. Keith Stewart 773-529-7000

August 26, 2014 Real Estate Report - Oil and Rates

There is an old saying which revolves around the fact that oil and water do not mix. But how about oil and interest rates -- do they mix? The truth is that oil prices and rates have gone lower in tandem this summer. There was a time when the economy could be stopped or started with a change in either energy prices or rates. However, today the effects are not as clear. For example, changes in gas prices don't seem to affect the consumer as much as they did decades ago. There are several reasons for this, but one important factor is the increase in energy efficiencies. On the other hand, the magnitude of the effect of interest rates does not seem to have lessened, but it is hard to tell with rates remaining so low for the past several years. For example, last year when interest rates started to rise, the real estate market responded by eventually slowing down. Again, the direct effect is not as clear as it always has been. For example, so many in America refinanced at record low rates in the past few years, the rise in rates not only slowed down the pace of refinancing, but also made homeowners more reticent to put their homes on the market. Why leave a home which has such a low mortgage payment? This phenomenon has contributed to a shortage of listings which has in turn contributed to the slowing down of the real estate recovery. Will the more recent decrease in rates reverse this trend? We really don't think that today's rates are high enough to keep people from selling their house. After all, rates are still close to as low as they have been in our lifetime. What will stimulate real estate is the continued generation of jobs which will increase household growth and a person's confidence to make a move. Job creation may actually cause rates to rise, but as long as the interest rate increases are marginal, they won't keep new households from purchasing their first home or renting a starter home. Meanwhile, lower gas prices and lower rates right now are good news for the economy and should be celebrated while they last. Keith Stewart - 773-529-7000

August 19, 2014 Real Estate Report - The World is in Focus

There is no doubt that the world has seen more than its share of conflicts this year. We have seen major conflicts in the Ukraine, Iraq, Gaza, Syria, Libya and more. With the amount of turmoil we have seen, the world markets have been pretty solid with our stock market being no exception. By mid-July, the Dow and the S&P were in record territory. In this column we even called it the "Teflon Market" because major news seemed to be shrugged off regularly. Could this time be different? The Ukrainian crisis has occupied the headlines pretty much all year. Yet, the downing of a civilian airliner has brought the conflict to center stage as many countries, including the U.S., have invoked economic sanctions against Russia because of it's actions in Ukraine. Russia has retaliated with sanctions of their own and now we have an economic cold war in the making. And the markets have reacted negatively to these escalating developments. Many times analysts have indicated that the stock market is due for a correction as it has been almost three years since the last real correction of at least 10%. Each time we have had a pullback in the past three years the markets have rebounded quickly and this past week we saw at least a moderate rebound. If the Russian crisis escalates, could we be in for a real correction? Only time will tell. However, there is some positive news which has arisen from the stock market's recent international malaise. Long-term rates and oil prices have both headed lower. At a time in which we are receiving positive news with regard to the economic recovery, lower rates and lower oil prices may serve to hasten economic growth. If economic growth accelerates, that is good news for stocks -- but possibly only if rates stay low. Keith Stewart - 773-529-7000

August 12, 2014 Real Estate Report - The Aftermath

We have had a week to consider the barrage of data released during the last week of the month and the first days of August. The markets were very volatile during this period with the Dow moving from record territory by mid-July to a 2.5% loss in one week and negative territory for the year as of August 1. Other markets moved as well during this period as oil moved down below $100 per barrel the same week and long-term interest rates were also volatile. Previously we asked why rates are staying so low if it looks like the economy is rebounding. As a matter of fact, one of the reasons the stock market reacted so negatively to the good news regarding the economy is that there was a concern the Federal Reserve Board might raise rates more rapidly than expected. The Fed even noted in its recent announcement that inflation was moving closer to their target numbers. We note that this was just one reason for the negative reaction in the stock market. There were others. For example, there continues to be plenty of political and financial turmoil overseas. Plus, with the Dow and S&P reaching record territory again and again in the first half of the year, the markets could have been due for a correction. Keep in mind that if the Fed does raise their benchmark rates, short-term rates will rise. But this is no guarantee that long-term rates will also rise. With international turmoil and plenty of negative economic news to balance the overall good reports we have seen, long-term rates are more likely to go up if the markets feel that the Fed is over-stimulating the economy. In other words, the Fed paring down the purchases of Treasuries and Mortgage Backed Securities and talking about raising rates can actually ease the concerns of the markets and keep long-term rates stable. At least for now. The Fed and the markets will be watching the real estate markets closely from here because this is the one area which has been weak and the economy is not likely to overheat while real estate sales continue to be sluggish. Keith Stewart 773-529-7000

August 5, 2014 Real Estate Report - Let's Add Up The Data

We very rarely get a week of economic data like the past week. We had a week of employment releases, culminating in the release of the employment report on Friday. We also had the Federal Reserve's Open Market Committee meeting last week. Add to that the release of personal income and spending data for June and for good measure add in the first estimate of the second quarter growth of the economy (GDP). It is tough to sum up all that data in a short amount of time and indeed it may take some time for the markets to fully absorb the data as well. But let's give it a shot by asking the general question -- how did we do? With regard to second quarter growth, the preliminary number released on Wednesday was strong. However, the 4.0% growth rate is subject to revision and it comes after a drop of 2.1 % in the first quarter due to the harsh winter we experienced. Taken together, the economy grew at less than a 1.0% rate during the first half of the year and economists expect faster growth during the second half, but not necessarily as strong as 4.0%. Meanwhile, the Fed's statement after their meeting contained no surprises as they continue to lessen stimulus by paring down on purchases of securities and were a bit more upbeat in their assessment of the economy which gave the markets the idea that a rate increase will still come down the road, but that "down the road" is probably closer than it has been. The big release was supposed to be the jobs report on Friday. Actually the numbers released were fairly tame. The 209,000 jobs created were close to expectations, but did not exceed expectations. Even the increase in the unemployment rate from 6.1% to 6.2% was not seen as bad news because more Americans were participating in the labor market which is a key component of confidence. The tame numbers served to calm the markets which fell precipitously on Thursday because of fears that if the positive GDP report was coupled with strong jobs growth, the Fed could raise rates even sooner than expected. Keith Stewart 773-529-7000

July 29, 2014 Real Estate Report - Why Are Rates Not Going Up?

After a good hike in long-term rates during the second half of 2013, just about every analyst in the country seemed to be sure that this was just the first phase of rate increases to come. After all, rates were the lowest in a generation and the increase we witnessed last year still put rates in very, very attractive territory. Jobs growth started accelerating during the second half of the year and the systems were ready to fire on all cylinders while the recovery finally got into full gear. Then came the long, cold and hard winter. So we understand that factor. Once again, the recovery halted and rates came down. But this factor has passed. Job growth has heated up again and the stock market is at all time highs. The Federal Reserve has been slowing their purchases of treasury bonds and home loans in an effort to slow down fiscal stimulus and they are meeting this week with most observers feeling that rate hikes will be coming in early 2015. The question remains, why aren't rates going up in response to all of these factors? We could take the easy way out by saying that predictions of the future are futile and while this is true, we believe there are other factors at work. Certainly one factor encompasses the political tensions around the world. Ukraine, Syria, Libya, Iraq and Gaza are all spots of conflict right now. The tragedy of a passenger jet being shot down just demonstrates how dangerous these situations are. When the world erupts, while our economy has not been as stable as we would like -- it is still a haven of safety compared to the rest of the world. When there is unrest, Treasuries are still a choice for those who are looking for safety in a world of conflict. While this factor does not completely explain why rates are not rising right now, there is no doubt that this factor is important and it also explains why predictions are futile. Next week, in addition to the analysis of the Fed meeting and the employment data, we will talk about one other factor contributing to low rates. Keith Stewart 773-529-7000

July 22, 2014 Real Estate Report - Do You Remember Inflation?

While some may consider this a sarcastic question...we have not had really high inflation in the United States for some time. For example, in the past twenty years the retail inflation rate has averaged approximately 2.25% with an even lower number for the past decade. Two points about this. First, even low inflation rates can cause increases in the cost of living. For example, a 2.25% inflation rate over 20 years will increase the cost of living over 50%. Secondly, though low inflation rates can create issues in the long run, those who are older remember a U.S. inflation rate of near 10% per year from the period of 1973 to 1982. That was real "old fashion" inflation. So if raging inflation has not been a problem for ten years, why bring it up now? Because the real reason we have had really, really low interest rates for the past ten years is the lack of inflation we have experienced. And if we really want to know when rates are going to go up significantly, we need to watch the data on inflation more closely. The reason rates trend up when we get good economic news is the fact that the markets feel that the Federal Reserve Board will raise short-term rates in response to the threat of inflation. There are actually two stages here. The Fed has kept short-term rates near zero in response to our deep financial crisis and lackluster recovery. So the first move is to move rates to a low inflation normal. The second move is the one we should worry about in the long-term. That is a move to head off inflationary expectations if the economy heats up. We expect the first move and should worry about the second move. For right now the sale on money to finance cars, houses and investments continues. If we keep creating jobs, we should keep a wary eye on the inflation number because we know the Fed is doing just that when they meet next week. Keith Stewart 773-529-7000

July 15, 2014 Real Estate Report - Still Work To Be Done

As the euphoria wears off in the aftermath of our stellar June employment release, we realize that there is still work to be done in order to fully recover from the financial crisis and deep recession. The recovery has been going on for five long-years, but it is still not fully mature. For example, while we have recovered all jobs lost during the recession, we have not added enough jobs to accommodate the population growth that has occurred during and since the recession. Even at today's increased pace of job growth, this void will not be filled for two years or longer. Furthermore, while the unemployment rate has dropped to 6.1% -- which was the lowest in almost six years, the "underemployment" rate still stands at 12.1%. The underemployment rate includes those who are working part-time because they can't find full time jobs. The labor participation rate stands at 62.8% which is a 36-year low. It is true that the baby boomer generation is reaching retirement age and this contributes to the labor participation statistic. On the other hand, it is not merely how many jobs are created -- it is also what type of jobs are created. America needs more high paying full-time jobs. So before we celebrate the end of bad times, we must understand that there is truly more work to accomplish. The fact that we have more room to grow is actually good news for right now because this gives the Federal Reserve Board latitude to keep interest rates lower for a longer period of time and not worry about the economy overheating. The markets will cause rates to rise as we witness the start of the cycle of better times. If this surge in job hiring spreads to the real estate markets, we will start making up ground in a hurry instead of the snail's pace of the past five years. If that happens, expect the Fed to act much more quickly. Keith Stewart 773-529-7000

July 8, 2014 Real Estate Report - Mid-Year Employment Reading

We hope that everyone enjoyed the 4th of July Holiday. There were plenty of fireworks during the weekend but the day before the holiday started the government provided their own fireworks with the release of a strong jobs report for the month of June. Most analysts were expecting a decent gain in jobs at just over 200,000 and for the unemployment to remain steady at 6.3%. The numbers were stronger than expected, especially when considering the fact that the previous months of jobs gains were revised upwards. In June the economy added 288,000 jobs which is robust by anyone's standards. The unemployment rate dipped to 6.1% and the decrease cannot be attributed to people leaving the workforce as the labor participation rate stayed steady. Though these numbers are subject to revision in later months, the fact that ADP released a similar number for private payroll growth the day before just confirmed the fact that the job market is indeed heating up. What does that mean? This is just what the doctor ordered for the economy. More jobs should translate into higher levels of consumer spending and especially spending on big ticket items such as cars, furniture and houses. A stronger housing market and automobile industry should create more jobs and the virtuous cycle will be created. If job creation continues at this pace, we should expect a pickup in interest rates and the growth in home prices should continue. We know we have said this before -- the combination of low rates and low housing prices will not last forever. While the stock market has been strong, rates have remained low. However, this news might just be the beginning of the end of the nation's sale on money. Keith Stewart 773-529-7000

July 1, 2014 Real Estate Report - The Oil Dilemma

If you read the analyst's projections, you get the impression that the price of oil should be falling because there is excess supply on the horizon. Demand is slowing in developed countries such as ours and new technology is helping us find oil where we have never gone before. "Tightening fuel efficiency standards for automobiles and changing consumer preferences look set to send U.S. gasoline demand back on the declining course on which it embarked in 2007," the Paris-based International Energy Agency said in its latest forecast published recently. Of course, this report can't predict political and other turmoil that occurs around the world. The conflict in Iraq has contributed to a spike in oil prices and because it heated up as the summer driving season was getting underway, there is a concern that gas prices will also spike. Gas price increases can affect consumer spending and with the economy recovering from the winter slowdown, the timing for price increases is not great. Although we are not sure that there is ever a good time for higher energy prices. Any data which could lead to a long-term increase in inflationary expectations can affect interest rates as well. In this case, the "long-term" projections from the International Energy Agency represent good news. In the short run we will always have to deal with interruptions in supply. Some of these may be caused by natural disasters which are never predictable. Remember, we are about to enter hurricane season. This week we will get a reading which will tell us how well we are recovering from the cold winter. The employment report is released early because of the 4th of July Holiday. We have some momentum in the employment sector and most are expecting this good news to continue at least moderately. Any surprise to the upside or downside could affect the stock and bond markets and thus the economy. What is interesting is the fact that this report will be released right before the holiday weekend. The markets are typically quiet during this summer holiday period but this week could be an exception. Keith Stewart 773-529-7000

June 24, 2014 Real Estate Report - The Student Loan "Crisis"

A recession is like an earthquake. There are many aftershocks and if the earthquake is really bad, some of the aftershocks can be strong earthquakes in themselves. We have been dealing with the aftershocks of the recession for many years because of the severity of this recession. Today we are dealing with another one in the form of student loans. The President this month moved to ease requirements for those buried in student loans. Congressional action is being considered. How did we get here? The recession. During the recession, younger people could not find jobs, so more went to college. Of course, they borrowed money to do so and when they graduated they have been burdened with big student loan debts. Only getting jobs was still not so easy. While this generation struggles with the debt loads and finding their way, it has affected household formation which affects our real estate market as well as other sectors of the economy. Easing repayment requirements will help, but in the long run this is another obstacle that must be overcome over time. Time may not heal all wounds, but a better job market solves many of the foundational problems we have faced. Speaking of the jobs market, next week we approach the July 4th Holiday on Friday. We have major economic releases to assess this week such as personal income and spending as well as consumer confidence. But next week we have the early release of the employment report because of the Holiday. We know this is a time of celebration of our Nation's birthday. However, the fireworks may be starting early as the report will be released at a time when many analysts and traders are leaving town. This could make for an interesting week for the markets. Keith Stewart 773-529-7000

June 17, 2014 Real Estate Report- Beyond The Numbers

We have received some good news over the past few months regarding employment growth. The creation of jobs is the most important function of the economy. When people can find jobs, this creates confidence. When people are secure in their jobs they tend to spend more. This includes large purchases such as houses and cars. Of course, the real estate sector is another huge factor within our economy. So, the next question is--how good are the job numbers? Here is the good news, May represented the fourth consecutive month of jobs gains over 200,000 and that is the first time that has happened since 1999. On the negative side, the labor participation rate was 62.8%, which was unchanged from April. This is the lowest rate in decades. We do understand that this number is affected by the number of people retiring and with baby boomers aging there are record numbers retiring. But it is also affected by the fact that the population has been growing. A few weeks ago, we pointed out that the population growth of our country may be poised to present us with a housing shortage in the future. Well, it also means that we must create more jobs than ever before and that has not happened yet. We lost 8.7 million jobs during the recession. Again, the good news is as of May these jobs have been recovered over the past four years. That is a rate of approximately 180,000 jobs per month. We are now creating jobs at over 200,000 per month. If we can create jobs at a rate of 200,000 to 250,000 per month this would appear to help us catch up with population growth in a few years and lower the unemployment rate further. We believe as more people obtain gainful employment, they will spend more money and this will spur housing and other sectors of the economy which will create more jobs. That is what a virtuous cycle is all about and that is why this "200,000" number is so important. When the Fed meets starting today, you can be sure that these employment numbers will get a lot of attention from the members of the Federal Open Market Committee. Keith Stewart 773-529-7000

June 10, 2014 Real Estate Report - No More Excuses

Over five years ago we suffered the worst recession since the great depression almost 100 years ago. Since then our economic recovery has been the weakest of all recoveries as well. There are many reasons for the weak recoveries. The fact that our real estate market was devastated and needed years to recover was certainly a main factor. But there were other reasons for the stops and starts which were external. We had domestic and world-wide natural disasters from hurricanes and super storms to tsunamis. We will not get into a debate as to whether global warming is causing these extreme weather events but we will acknowledge that they were very, very extreme and caused major damage to populations and property. There were events that were not weather related, of course. There was the fiscal crisis in Europe and political crises at home. We had wars being fought and terrorist events. Many of these events prolonged the recovery and made us wonder whether we would suffer a double dip recession, which never came. 2014 has certainly not been smooth sailing with our famously cold winter and the crisis in Ukraine. However, we believe our economy has recovered to the point that we no longer talk about slipping back in recession. The drop in the economic growth in the first quarter is a testament to that confidence. Economists shrugged off the down quarter almost universally. So what comes next? The sun is shining and there is no more cold winter. We are running out of excuses for the economy being so lackluster during a recovery period. The employment report released on Friday showed continued progress in that regard. The last two months has seen a significant pickup in hiring but the employment report also shows how far we need to go. We have recovered all the jobs lost during the recession, but accounting for population growth during the past six years, we have seven million jobs to go. Economists surveyed by CNN/Money indicate that it would take two years or more at this pace for the unemployment rate to reach 5.5% and wage growth is still anemic. The good news? A slow recovery continues to support low interest rates and hopefully the Federal Reserve Board agrees with that assessment when they meet shortly. Keith Stewart 773-529-7000

June 3, 2014 Real Estate Report - The Relationship Between Stocks and Rates

There is an obvious relationship between the movement of stocks and interest rates. When the economy is doing better, stocks should also improve. This same stronger economy increases inflationary pressures which causes interest rates to rise. In addition, when stocks are doing well, more investors put their money in the stock market as opposed to bonds. So, on days that stocks are doing well, interest rates are increasing which means that bonds are not doing so well. Seems simple, right? Look over the past five years and it is not so simple. For the past five years stocks have done very well as rates have stayed low. What was the cause? The precipitous drop in the stock market during the recession was a factor as much of this bull market is a rebound. Rates have stayed so low during the tepid recovery because the recovery has not been strong enough and there have been no inflationary pressures. In other words, day-to-day you are likely to see stocks rise and an increase in rates, but sometimes long-term trends paint another picture. Why is this important? Long-term trends don't last forever. If the economic recovery heats up from here, we could see rates rise and perhaps stocks will get stronger or perhaps they will fall because investors believe higher rates will stall the recovery. Many think that the pop in rates we had late last year was a partial cause of a slower economy this year, especially with regard to real estate. So if you want to know what rates are doing, stocks are not the only factor. Watch economic reports such as the jobs data we have coming out this week. Full employment would translate into inflationary pressures. However, we are a long, long way away from full employment. Keith Stewart 773-529-7000

May 27, 2014 Real Estate Report - Why Does The Stock Market Keep Bouncing Back?

The stock market has been on quite a run for the past five years or so. Granted, most of this was a rebound from the precipitous drop we experienced during the financial crisis and recession. However, a run this long and this far is hard to ignore. So many times in the past five years we have seen periods of weakness that looked like either corrections or the end of the run, only for stocks to bounce back and hit new highs. Why have stocks been so resilient? There are a multitude of theories, but the bottom line is that stocks would not be doing well if companies were not doing well. It is that simple. Of course, that begs the next question, why have earnings been so strong when the economy has been in such a slow and painful recovery? One explanation delves into the theory that technology has made companies more efficient. Of course, that also means companies need to hire fewer employees to run their businesses and this is possibly one reason the labor markets have not recovered. Certainly, the growth of online shopping is one of the factors that come into play in this regard. The real question is, what does the strong stock market say about the economy? Here is where there seems to be a disconnect. Is the stock market saying -- don't worry, the recovery is coming; Or is the stock market saying -- we don't care how slow the economy is, as long as we are producing results? If the markets could talk, we could find out an answer. Meanwhile, we will speculate that both answers are in play. If the markets felt that darker days were ahead of us, strong earnings today would not matter as much. Keith Stewart 773-529-7000

May 20, 2014 Real Estate Report - Listing Shortage: Just The Beginning?

Last week we wrote about a shortage of listings which has characterized the real estate markets for the last several months. From an economic perspective with bank owned properties still being put on the market, it seems that this shortage is surprising. Yet, it is not. Some three years ago, we reported that several analysts had concluded that we were not building enough houses to meet the demands of population growth. Here is a quote from one article published in Alpha in 2011 ... housing starts are going to have to increase by leaps and bounds over the next several years, if only just to catch up to the demands of a growing population... The Census Bureau has projected that the population will grow from the baseline of 300 million in 2007 to 440 million in 2050, an increase of 140 million in just over 40 years. By contrast, it took the country 100 years to grow by 200 million during the last century. Another perspective? We are adding two times the population of the whole country in 1900 during the next three and a half decades. And these people will need somewhere to live. One might argue that the current homeownership rate is around five percent less than at the peak of the real estate boom. But when you increase the population by 50%, a drop in the homeownership rate of 5% or even 10% does not make a dent. And keep in mind that many who rent will still be renting single family homes. Therefore, a drop in the homeownership rate does not necessarily drop the demand for single family housing--including condominiums. So the question we must ask: Is today's listing shortage the beginning of a severe housing shortage which could cause housing prices to increase further in the future? We don't have the answer with regard to whether such a shortage will occur or when it might occur, but the question is valid. Either way, expect more homebuilding to accommodate this growth in the future. Keith Stewart 773-529-7000

May 6, 2014 Real Estate Report - What a Week of News!

If it was the weather we would have called it the perfect storm. Last week we had a confluence of economic news which rarely is seen in a five day period. We started the week with the release of the index of pending sales. This measure has taken on new significance this spring since both existing and new home sales have languished because of the weather. Pending sales give us a peek at the future. On Tuesday the monthly consumer confidence index was released as the Federal Reserve Board started their meeting. Wednesday things really heated up with the release of the ADP private payroll report, the Fed made their announcement at the conclusion of their meeting and the preliminary estimate of the first quarter's economic growth was also announced. Thursday brought the weekly first time claims for unemployment, personal income and spending for March and the PMI manufacturing index. We ended the week with a bang with the release of factory orders and the monthly jobs report. So the next question is--how did the data come out? The answer to that is not so simple. We started with an increase in pending home sales, but sales are still slower than they were last year. The economic growth of 0.1% for the first quarter was disappointing, but many seem to think that the number will be revised later and definitely was affected by the weather which is a temporary factor. On Wednesday, the Fed's optimistic statement about the economy seemed to bear out this hypothesis regarding the slow first quarter. On Thursday the reports on personal spending and manufacturing came out on the positive side while first time claims for unemployment rose unexpectedly. In other words, we were left with a mixed bag coming into the release of the employment report which put us solidly in the plus column. Not only were there almost 300,000 jobs created in March, but the previous months were revised upwards by almost 100,000 jobs and the unemployment rate moved down to 6.3%, the lowest since September 2008. Keep in mind that the precipitous drop in the unemployment rate was at least partially due to workers leaving the labor force which means that there is still a long way to go until we solve the long-term unemployment issue and explains why the markets did not respond "euphorically" to the news. But certainly, the news this week was positive on balance and shows we are headed in the right direction after a pause for a long and cold winter. Keith Stewart 773-529-7000

April 29, 2014 Real Estate Report - It Sure Seems Like Spring

Even though there has been snow in some parts of the country very recently, it feels like springtime with regard to the economy. We continue to have some fairly positive economic news released. The releases have included a stronger than expected retail sales report and leading economic indicators for March. Any good news regarding consumer spending is good news for the economy as a whole. The news from the real estate sector we received last week was much less promising and again we wonder how much this news was affected by the weather. This week is a very important week and will go a long way to let us know whether the cold winter slowdown is behind us. We start out with pending home sales then follow with consumer confidence and a meeting of the Federal Reserve and then towards the end of the week personal income and spending numbers are released. And that is just the warm up. After the private payroll data is release by ADP on Wednesday, the jobs report closes out the week. Lately there has been no report more important than the release of the employment numbers for the month. With the Federal Reserve making their post-meeting announcement on Wednesday, personal spending data on Thursday and the employment report release on Friday, it could be a week with plenty of fireworks. Any one release could give us a surprise that could shake up the markets. At this point, the markets believe that the economy is waking up. We just might see if the economy awakens groggily or with plenty of vigor. Keith Stewart 773-529-7000

April 22, 2014 Real Estate Report - Why Is China So Important?

The past few weeks has seen some major volatility within the stock markets. Some weeks have seen major pullbacks and others we have seen significant bounce-backs. The first ten days of April, the volatility of the markets hit on the downside. One thing which is interesting about this pullback is that it happened as the economy was pulling out of its pause caused by a very cold and harsh winter. For example, the first week in April we saw a stronger employment report and the second week first time claims for unemployment fell to levels not seen for many years. When stocks drop the analysts are always searching for explanations, yet sometimes there seems to be no logic. One card which keeps coming up in explanations this month is the threat of slower growth in China. So we must ask, why is China so important to us other than it is a huge economy? Certainly at a growth rate of over 7.0%, this is not an economy in trouble. For one thing, the Chinese populace travels overseas to the United States in great numbers -- almost two million per year. In 2012, the Chinese spent almost $9 billion in the United States. Secondly, China helps keep our interest rates low in two ways. Their low cost of manufacturing lowers cost to our consumers. And the profits these manufacturers produce are eventually invested in US Treasuries. Basically, China is helping to finance our Federal budget deficit. More economic growth and lower rates? These are good enough reasons for us to hope that the growth in China continues. And good enough reasons to fret when it appears that the Chinese growth cycle is abating. So, if you are shopping for a home this week and enjoying the fact that rates on home loans are very low -- don't forget to thank the Chinese, as improbable as that may seem. Keith Stewart 773-529-7000

April 15, 2014 Real Estate Report - It is Finally Happening

For years the slow recovery was hampered by the existence of tighter credit. A vicious cycle was created when the recession caused consumer credit to worsen and at the same time banks tightened up on lending standards. For some time we have been predicting that lending standards in the real estate sector would not loosen up until two factors emerged. Factor one was the stability or recovery of real estate values. It makes sense that lenders would be shy about lending in a real estate sector in which the underlying asset was unstable. Yet, the real estate markets recovered over the past few years without a significant improvement in lending standards. Why? Some blamed it on new legislation aimed at making lenders more responsible with regard to their lending. But most aspects of the legislation were not implemented until recently. In reality, there was a second aspect we cited over the past few years which has now come to fruition. For the past three years lenders were inundated with refinances because of record low rates. Now with rates still really low but a bit higher than they were, the refinance craze has abated. It makes sense that lenders would not lower standards while they were overwhelmed with demand. Today, lending standards are loosening because lenders are hungrier. Many national sources for real estate loans have lowered their minimum credit score requirements. And we think that this will flow into other areas of lending such as cars and business loans. This is all part of building a virtuous cycle. Keep in mind that we are not looking for a return to the subprime era or anything close to that. The new legislation we cited makes sure lenders will be more careful. Underwriters are still scouring loans with a fine-tooth comb. But it is interesting that while lenders are implementing the new legislative standards, their requirements are getting somewhat less restrictive. Keith Stewart 773-529-7000

April 8, 2014 Real Estate Report - The Report We Have Been Waiting For

Friday's employment report has given us three things we have been waiting for. First, this jobs report was relatively good after a string of disappointments over the winter. It tells us that at least part of the slowdown was definitely due to the weather -- a question everyone has been asking. Secondly, the report contains another upward revision to the previous two months' of data. There were actually 37,000 more jobs created in January and February when compared to last month's release. That is a revision which we speculated could be coming. Finally, the economy has now recovered all of the millions of private sector jobs lost during the recession. That is a lot of jobs to recover and represents a very significant milestone. The problem is, it took the economy four years "post recession" to regain the jobs lost. During the recession and afterwards, the population has been growing. As reported by CNN/Money, Heidi Shierholz, a labor economist at the Economic Policy Institute, estimates that we need an additional five thousand jobs to reach a healthy pre-recession labor market. That is a long way to go and Federal Reserve Chairwoman Yellen said as much in testimony to Congress just a few weeks ago. What this means is that the economy is indeed recovering, but still painfully slow. We need a few more years of this level of growth to become healthy or we need for the recovery to accelerate. There is another piece of good news here. The better jobs report did not cause another increase in interest rates -- at least initially. Again, this is evidence that the markets believe we need even more good news. Keith Stewart 773-529-7000

April 1, 2014 Real Estate Report - April Fools' Day

We had a very robust last half of 2013. The economy expanded and the job creation machine heated up. The Federal Reserve Board predicted even stronger growth this year. So what happened? We saw the economy take a step back, especially with regard to the creation of jobs. Even the real estate market seems to have quieted down since roaring back in 2013. This has given us a lot of fuel for speculation. We have speculated about the weather and political situations such as Ukraine having at least a temporary effect. Yet we go into April wondering whether late last year was a mirage or did we just decide to all stay inside during the cold weather. This speculation makes the jobs report to be released on Friday very important. We had some improvement in job creation in February after weak reports for December and January. Yet we are still far below the levels of the second half of 2013. Most market watchers are not expecting the employment numbers to bounce right back. But they are expecting continued improvement, especially in light of the fact that first time claims for unemployment fell significantly during the middle part of March. There were still plenty of winter storms in March but with the days getting longer and temperatures rising, the stage is set for some level of progress. At this point a very poor or a very strong jobs report would be a surprise. In March we set the clocks forward one hour. Today we have April Fools' Day. Hopefully spring is really here to stay. Keith Stewart 773-529-7000

March 25, 2014 Real Estate Report - Around the World

Here is the rule---as our economy gets stronger, rates will rise and so will oil and gas prices. But rules are made to be broken. In mid-March we saw a stark reminder of how the rules don't always work. Though the news from the economy looked pretty good--from retail sales to first time claims for unemployment, rates dropped. How can that be? We can never tell what will affect the markets. In this case we received some not-so-good economic news coming from China and a growing crisis with regard to the Russian incursion into Crimea. Therefore, in a week in which we should have seen rates rise, rates actually fell. This does not mean that the rule is now broken forever. It means that intervening events can always make life more interesting for market prognosticators. As a matter of fact, it took about one day for the rate reversal to happen as the Federal Reserve Board met for the first time under Chairman Yellen and announced that they believed employment will continue to grow this year and hinted that the winter doldrums was due to the weather. The Fed cutting back on purchasing Treasuries and Mortgage Backed Securities is one thing that is contributing to the long term rise in rates. Even assessing our own economy is a difficult task. For example, when we read reports that the better economy is actually increasing the rate of divorces, it does not seem quite right. We understand that a better economy spurs household growth in terms of sons and daughters leaving home and striking out on their own. Certainly, marriages should increase in a better economy. But divorces? Apparently, if you don't have a job, getting divorced is not an option. For those having a hard time finding a house to buy in areas of tight inventory, you may want to get tips from your local divorce attorney. Yes, following the economy and the markets is tricky at best. Keith Stewart 773-529-7000

March 18, 2014 Real Estate Report - A Bunch of Bull

With the economy still undergoing a very slow recovery, it is hard not to question why the stock market seems to be doing so well. The bull market for stocks is about to turn five years old with a gain of approximately 150% in the Dow over that time. Those are pretty impressive numbers, however when you look at the numbers more carefully, it depends upon the perspective. Measure from the peak in October of 2007 before the financial crisis hit and one will see that the Dow increased less than 20% total over the past 6.5 years. Measure from 1995 and the Dow increased over 300% in the past 19 years, showing that the long-term numbers are indeed pretty impressive. The real question is--why has the stock market fully recovered from the financial crisis while other areas of the economy still lag? Real estate is on the way back but has a ways to go to reach its peak just before the crisis. Many companies are still struggling and paring staff while employment has not recovered. Certainly the Federal Reserve Board has helped with record low rates. Companies have been reticent to hire in uncertain economic times, keeping staffing levels low while building up cash reserves and boasting profits. Some of this cash is making its way into the real estate sector as investors have purchased a record number of homes for cash. Is the stock market's rally telling us that better economic times are ahead? This is certainly a possibility. However, we also know that better economic times may cause the Fed to eventually raise rates and it will be interesting to see if that move would take the wind out the market's sails. A better economy actually slowing stocks down sounds perverse but it could happen. In the meantime, we enjoy the ride and the historical perspective reminds us that trying to time the market is an exercise in futility. This statement holds for real estate as well. If you bought a home in 1990 and stuck with a 30-year fixed home loan, you would have impressive gains regardless of what has happened since 2007. Keith Stewart 773-529-7000

March 11, 2014 Real Estate Report - Spring Thaw?

Here is about the only thing we will predict. This winter is not lasting forever. It may seem like it has lasted forever but a spring thaw will come. When it comes, we will see that many Americans will emerge from their homes with a bad case of cabin fever. What will we do when the weather is nice? Well, many will wash the salt off their cars. Others will go looking at cars, homes and furniture. Still others will start spring cleaning and see that they need to begin home improvement projects. The next question is -- will they just look or will they buy? We know some will come out and spend. This will give a boost to the economy, but we don't know how much of a lift the economy will experience. We do know that the winter slowdown is a temporary phenomenon, but we also know that short- term factors can affect long-term performance. The winter lull could have a lasting effect upon growth in 2014 or if the consumer comes out roaring with our spring thaw it will be but a small speed bump in the road as opposed to a big winter pot hole. Did February's jobs report give us a clue? It would have been easy to write off poor numbers to bad weather if we did not have two disappointing jobs reports preceding February's release. As it turns out the number for February did not give us a clear picture. The new jobs created were 175,000 and this was slightly more than expected, but certainly not something that would make us forget December and January. The unemployment rate rose slightly to 6.7%, which was slightly higher than expected, but last month the rate dropped by the same amount. The revision of the data from the previous two months also did not show a clear picture as the previous numbers were revised higher, but by a nominal amount. Looks like we will have to wait for March and April to see how strong the thaw is going to be. Keith Stewart 773-529-7000

March 4, 2014 Real Estate Report - The Employment Report Beckons

The monthly jobs report is the single most important economic release every month. Why? It is all about jobs--the economy, interest rates, real estate and more. To put it simply, consumer spending drives the economy and without enough jobs being created, consumer consumption will not grow. The relationship between job creation and real estate is a perfect example. When more jobs are created, increased demand is created within the real estate sector. When there is more real estate demand, more jobs are created. The next question is -- what are we looking for within the report? Traditionally, the unemployment rate is the headline number each month. Yet, as the unemployment rate has dropped more than 3.0% from its recessionary high, we see that the rate tells only part of the story. The labor "participation" rate can cause variations in the unemployment rate. Many who have removed themselves from the labor force through retirement and other factors can be enticed back if there is a demand for workers. Thus, the unemployment rate can go up with the creation of more jobs or the rate can go down with the creation of fewer jobs even though these results seem to be counter intuitive. More recently, the number of jobs created appears to have become just as important as the unemployment rate. Even the Federal Reserve Board which had set a goal of a 6.5% unemployment rate before considering altering their fiscal policies admitted at their last meeting that other factors will be taken into consideration within the decision-making process. Plus, because the last two reports have been disappointing with regard to jobs creation, we will also keep a close eye on revisions of the previous two months' of data. Complicating matters even further is the fact that winter storms continued through a good portion of February. As muddled as the picture is -- a surprising report in either direction can affect the markets and the economy significantly. Keith Stewart 773-529-7000

February 25, 2014 Real Estate Report - Oil Hits $100

Another effect of a long and cold winter is invariably the rising cost of energy. Energy bills get hit with a double whammy in a cold winter. First, homes use more energy for heating purposes because of the cold and because we are home more often and secondly the cost of the energy we use goes up because of higher demand. Thus after a nice respite with lower energy costs which helped the economy last year, we start this year with oil prices hitting a benchmark of $100 per barrel in the middle of February with natural gas prices rising as well. The next question is--will this hurt the economy? When consumers spend more on energy costs, this leaves less discretionary income to spend elsewhere. So it is not surprising that we saw a weak report on retail sales released recently. We should also point out that more energy used by homes also increases economic output and this will factor in the first quarter numbers as well. However, it is the cold spurring higher energy prices--not stronger economic growth. The cold winter will end soon. This means that higher energy prices could be a temporary phenomenon. Or, if the economy is bolstered by latent demand after the long and cold winter, these levels could be the new normal. Energy costs affect more than consumer spending -- they affect consumer trends as well. For example, higher energy costs spur housing sales closer to the center of cities versus the far out suburbs. This is part of a trend that has been occurring over the past decade. Thus, the cost of oil and gas bears watching even when we are not at the pump enjoying the better weather ahead. Meanwhile we will see economic reports this week covering consumer confidence, personal income and spending, as well as pending and new home sales as we approach another wave of jobs data next week. Keith Stewart 773-529-7000

February 18, 2014 Real Estate Report - The Bright Side

It is hard to look at the bright side of a very cold winter which seems to have interrupted the economic recovery and kept most of the nation indoors for much of the winter. Cold winters also increase the price we pay for energy and this winter has been no exception. So where is the bright side? The bright side will be found within the real estate sector. For years the nation's real estate has been on sale with ridiculously low interest rates and low home prices. Last year, the sale waned a bit as demand picked up. Homes were still affordable in most areas of the country -- especially as compared to renting. However, rates did rise for most of last year and home prices escalated as well. Well, severe winter weather also slows down the pace of home sales. Who wants to go look for a new home when it is covered in snow? Even potential sellers are less likely to list their homes in frigid weather. The tough winter weather has slowed down the increase in home prices and given us a respite from rising rates. At least temporarily. We emphasize the word temporarily. Winters don't last forever and when the snow melts there will likely be latent demand. We are not saying that real estate will get smoking hot --- but we do know that there will be many who will take advantage of the opportunity that this winter has presented. We can't make predictions but we do know that the winter will end and people who are suffering from cabin fever will come out and typically look at homes and neighborhoods. If the rush becomes really strong, then the temporary respite in rates and prices will not last long. If it is a more orderly return to normal, the effect may be mitigated somewhat. Keith Stewart 773-529-7000

February 11, 2014 Real Estate Report - Is It The Weather?

For the past three quarters, the economy has grown at an annual rate of just under 3.5% based upon the preliminary numbers released in late January for the 4th quarter. This growth rate is even more impressive when you consider the fact that we endured a government shutdown for part of the last quarter of 2013. It is estimated that this shutdown knocked approximately 1% off the growth rate for the 4th quarter. A 3.5% growth rate, while not smoking hot, is strong enough to bring down unemployment while not igniting fears of inflation. A pretty good balance. And this balanced growth is a good indication as to why the stock markets rallied strongly in 2013 while long-term interest rates rose. Now we ask whether this growth rate is sustainable for 2014. We had several weak reports released in January, including the December jobs report and a slowing housing sector. Some have hypothesized that the severe winter weather in December and even worse weather in January is the culprit. If this is the case, the numbers should bounce back--including the stock market and rates, both of which fell in January. Keep in mind that storms actually can boost some sectors of the economy such as the use of energy. Our heating bills are telling us that. Last week's release of January's jobs report was another mixed bag with the unemployment rate unexpectedly moving down slightly to 6.6% but the total jobs created below forecast at 113,000. It is interesting to see both the number for January and also the revision of the previous months' numbers as there was very little adjustment to the disappointing December release but upwards adjustments in previous months. Weather related slowdown? With regard to jobs creation we certainly hope this is the case. We think everyone is hoping for a warmer February, though it has not started out that way. Keith Stewart 773-529-7000

February 4, 2014 Real Estate Report - Just a Reminder

We have just started a new year and that means just about every economist has made their predictions for the year. One consensus of predictions for 2014 has been for higher interest rates. It makes sense--as the economy recovers interest rates will continue rising from record lows. Keep in mind that even as rates rise they are still at bargain lows. However, when one looks at rates for the first month of the year, they are trending moderately lower. There are many reasons one can give for these lower rates, starting with the weak December jobs report released in early January. Today we will not assess the factors causing rates to ease. Today we will make a few points about the significance of these lower rates. For one, it is just a reminder that no one can predict the future. As a matter of fact, when everyone seems to predict the same thing, often the opposite happens. Secondly, one month of lower rates does not mean that rates will be lower all year and the original prediction is moot. What we have here is an opportunity for those who were thinking about purchasing or refinancing their homes. Rates do not go up in a straight line. There are always dips and these dips provide opportunities. Again, we can't predict if the trend will continue. Which leaves us to one last question -- What would make rates start heading back up? Well, a good starting point would be the January jobs report which will be released on Friday. If the report reinforces the news from December, rates could stabilize at this level or go lower. Or if the report is strong, they could turn around in a blink of an eye. Typically the markets start speculating before the numbers are released so this week we could see volatility. Last week the Federal Reserve Board's Open Market Committee met and its decision to progress with its tapering of asset purchases seemed to be consistent with further optimism regarding the economy. Does that give us a hint? Unlike all these economists, we are not going to predict the future. Keith Stewart 773-529-7000

January 28, 2014 Real Estate Report - Will Congress Play Ball?

For several years we have been recovering from a financial disaster. The bad news is that the recovery has been so weak that many have felt we were not recovering. The good news is that the recovery has continued slowly but surely. During the way we have had several speed bumps thrown in our way. Some of these were not avoidable -- such as tsunamis and super storms. Others were man-made such as the threat of a government shutdown or a fiscal cliff. Today, many are more optimistic about what is on the horizon. The most important sector of the economy -- real estate -- is recovering. The fact that interest rates have risen over the past year is not a symptom of weakness, but a symptom of a stronger recovery and many analysts are optimistic that the soon-to-be-released advanced reading of the economy for the last quarter will continue this evidence. Despite the optimism, there is still the possibility of man-made roadblocks. For example, early next month Congress must vote on the extension of the debt ceiling. The good news is that before the end of last year, we actually had a bi-partisan agreement to keep the government open. This gives us optimism that Congress might again resolve a potentially sticky issue. We do know historically that this Congress will act at the last second (or afterwards) and there will be a lot of saber rattling. In the past when deadlines approached, the media coverage affected consumer confidence. At this point, it may be that confidence will not be affected as much by these negotiations because we have become anaesthetized by it all. We are just used to it at this point. Early next month we have a jobs report and a Congressional issue. Let's hope neither puts another speed bump in the way of our continuing recovery. On the other hand, we don't want the Federal Reserve Board thinking that things are going too well when they meet this week so that they become inclined to make an announcement that will reverse the recent trend towards lower rates. Keith Stewart 773-529-7000

January 21, 2014 Real Estate Report - Jobs--The Key Ingredient

Last week we reported on a disappointing jobs report. We also indicated that we should not jump to a conclusion as to the importance of this one report. One report can be very misleading and is subject to significant revisions in the next two reports. In this case we had inclement weather which could have temporarily affected the numbers as well -- especially within the construction industry. In addition, if you look at the trends in first time unemployment claims, you can see a reason to be optimistic about better numbers ahead. But the next question we must ask is--why is the employment report so important? Every month the employment release is under more scrutiny than any other report. The answer to this question is much easier than predicting the future of jobs growth. A healthy economy produces more jobs. More than that, the jobs created by a healthily economy causes more jobs to be created. This is what we call a "virtuous cycle." One good thing leads to another which comes back and supports the first good thing. During the recession and during our painfully slow recovery, we climbed out of a vicious cycle, but never quite reached a virtuous cycle. Adding over 200,000 jobs per month puts us in reach of the virtuous cycle. We were starting to see these numbers late last year until the last report. Now we must ask if the December report was just an aberration of numbers, or was it the start of a new trend. Thus far the economic reports are certainly strong enough to support decent job growth. All we can do is wait a few weeks for more numbers. But for those who are looking to purchase big ticket items such as homes and cars--the reaction of the markets to the jobs report gave us moderately lower rates and that is a good thing. However, it is likely to be temporary at best if the employment picture gets stronger with the next report or first time claims of unemployment continue to trend downward. Keith Stewart 773-529-7000

January 14, 2014 Real Estate Report - The Employment Report Disappoints

Just when we were starting to get used to strong jobs data we were reminded of an important adage -- never try to predict the future. While the analysts were predicting December job growth would be around 200,000, the number came in short of 100,000. This number disappointed the markets. In a strange twist, the unemployment rate fell from 7.0% to 6.7% when no decrease was expected, but this was not seen as a sign of strength as many left the workforce in December. In all, the economy added just over two million jobs in 2013 which is pretty close to what occurred in 2012. This translates into approximately 170,000 jobs per month. All the while the unemployment rate has been dropping and we seriously doubt that such a precipitous drop in 2013 -- over 1.0% -- is due entirely to a smaller work force. We are now getting close to where we have replaced the over eight million jobs lost during the recession, but we are not quite there yet. Three important points about the jobs report. First, these numbers are subject to future revisions. We would not be surprised to see the numbers revised upwards one month from now, especially considering the fact that the private payroll report showed over 200,000 jobs added for December. For example, in the same report November numbers were revised upward by 38,000. Secondly, weather issues in December could have depressed the numbers temporarily. Finally, rates fell initially in reaction to the report and the stock market did not show a negative reaction. Why? These numbers are not strong enough to prompt the Federal Reserve Board to abandon their stimulus program more quickly than planned. If revisions don't change the numbers, the halt to rate increases represents good news for consumers and business. Keith Stewart 773-529-7000

January 7, 2014 Real Estate Report - The First Big Event

The Holidays are just behind us and already we are coming up to the first big economic event of 2014. On Friday the employment report for December will be released. In addition, it is "jobs" week with releases such as Wednesday's ADP payroll report and Thursday's first time claims for unemployment. The stock markets ended the year on a roll and much of this roll was due to economic optimism which arose from strong jobs reports during October and November. This month we not only will be watching the December release, but also potential adjustments to the previous two months' numbers. The unemployment rate fell from just under 8.0% to start 2013 to 7.0% by November. The increased number of jobs created bodes well for overall economic performance and also will help dictate how quickly the Federal Reserve Board will wind down their stimulus programs. It may well be that market watchers have come to expect stronger jobs reports and any numbers released well short of 200,000 jobs created may cause some consternation in the markets. While stocks may react negatively to a surprise on the downside, this would likely help dampen the rise in long-term interest rates we have been experiencing. In addition, because the jobs report is being released a bit late this month because of the Holidays and the calendar, the February report will come rather quickly. Keith Stewart 773-529-7000