Tuesday, March 25, 2014

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

Tuesday, March 18, 2014

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

Tuesday, March 11, 2014

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

Tuesday, March 4, 2014

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