Tuesday, January 28, 2014

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

Tuesday, January 21, 2014

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

Tuesday, January 14, 2014

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

Tuesday, January 7, 2014

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