Tuesday, April 29, 2014

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

Tuesday, April 22, 2014

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

Tuesday, April 15, 2014

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

Thursday, April 10, 2014

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

Tuesday, April 1, 2014

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