September 9, 2014 Real Estate Report - Well, Perhaps Not The Best of All Worlds

Last week we spoke with optimism about the fact that the economy is indeed recovering but interest rates are remaining lower than most had predicted for this year. We wondered whether we might actually have the best of both worlds -- at least for a short period of time. However, we have to recognize why rates are so low while the economy is edging its way back to normal. If rates are low because there is no evidence of inflation and the economy is not in danger of overheating, that is a good thing. As long as the economy keeps improving. On the other hand, if rates are down because of the violence which is occurring in several areas of the world, that is another matter. When the world is in crisis, it is not unusual for U.S. Treasuries to be a safe haven for investors. While the effects of low rates are still positive for our economy, we can't actually describe this as a good thing. And there is a connection between the economy and these events. For example, the economic sanctions levied against Russia are already affecting the European economy. During the financial crisis we saw how an under-performing economy in Europe can affect our economy's performance. With regard to our economic recovery, this past week's jobs report gave us evidence that the economy is not about to overheat and thus the Federal Reserve Board is not likely to move on increasing interest rates more quickly than originally anticipated. Wage growth has not been strong enough to contribute to concerns about inflation at this point in time. When you add the aforementioned concerns about world conflicts, it appears the Fed is more likely to keep rates low until sometime next year. On the other hand, the fact that 142,000 new jobs added in a month is now considered disappointing shows how far our economic recovery has progressed over the past year. Keith Stewart 773-529-7000