Tuesday, February 25, 2014

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

Tuesday, February 18, 2014

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

Tuesday, February 11, 2014

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

Tuesday, February 4, 2014

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