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