Tuesday, October 28, 2014

October 28, 2014 Real Estate Report - Happy Holidays

It must be the holiday season with so many gifts coming in. What else could explain good economic news combined with lower interest rates and lower oil prices? Even though the stock market is retreating, keep in mind that the Dow was below 12,000 approximately three years ago. Three years ago the unemployment rate averaged just over 8.0% and it is now just below 6.0%. Initial jobless claims were in the vicinity of 400,000 per week and now they are consistently below 300,000. We mentioned last week that it is surprising that rates and oil prices would fall in the face of relatively good economic news. As surprising as it is--we are going to advise you not to look a proverbial gift horse in the mouth. We are going to advise you to enjoy the lower rates and lower gasoline prices for as long as they last. That might be a few days, a few weeks or a few months. Or the markets might reverse themselves by the time you read this commentary. We do believe this week's meeting of the Federal Reserve Board's Federal Open Market Committee will be very interesting. The Fed is going to be reading signs of economic recovery with no inflationary pressures. They are also going to be feeling the worldwide turmoil going on and speculating whether events overseas will affect our recovery. Some are saying that they might extend their bond purchases to keep rates low. We don't think that an announcement of such will be in the cards, but the phrase "considerable time" when referring to future interest rate increases may stay as part of their vernacular. Of course, our speculation is just that -- speculation Keith Stewart 773-529-7000 http://www.newsletterproonline.com/newsletter/originationpro/?newsletter=true&nid=635&uid=9894

Tuesday, October 14, 2014

October 14, 2014 Real Estate Report - If it is all about jobs, then...

For years we have gone through a tepid recovery from a very deep recession. And all along we have indicated that we don't recover from such an event if Americans are not working. Year after year we waited and waited. Well, the wait is over. The recovery in jobs is more than underway, it has arrived. The average of 220,000 jobs added each month thus far this year -- and the unemployment rate dropping below 6.0% -- is just what the doctor ordered in this regard. This is not to say that we are all the way back. Many of the jobs created have been lower paying jobs, which has held back the pace of personal income growth. In addition, the low labor participation rate tells us that if jobs keep getting created, we will have to absorb many returning to the labor market. On the other hand, the progress we have made will cause a ripple effect throughout the economy. We are on pace to add almost 3 million jobs this year and this will increase consumer spending which will create more jobs. And some of this spending will make the real estate market stronger -- whether it is the purchase of new homes or major renovation projects for existing homes. Already we are seeing the strength in car sales and home improvement projects. But the one area we have not seen strength in this year is within the real estate sector. More recently, we have seen renewed confidence by builders as new home sales have been ramping up. The bottom line is that we can't have a recovery without the creation of jobs and it is the creation of jobs that will bring us a complete real estate recovery. Yes, we still have a long way to go, but if we keep creating jobs at this rate, the road will become a lot shorter. From there, the only question won't be if interest rates will rise -- but when will they rise and how fast. Right now we have the best of both worlds: more hiring and very attractive interest rates. Keith Stewart 773-529-7000

Tuesday, October 7, 2014

October 7, 2014 Real Estate Report - Nowhere To Go From Here

That is right. We have nowhere to go from here -- and that fact represents good news. Each week the markets watch the first time claims for unemployment to get a reading on the employment numbers. However, that practice may very well have run its course with regard to its importance in the short-term. It is a matter of math. When claims dip below 300,000, as they have for several weeks this year, there is not much room for them to decrease further. A recent article from Bloomberg indicated that we are now at the level of claims not seen since 2006. And there are over five million more people who are participating in today's labor force as compared to 2006. Indeed, during the three previous expansions, weekly jobless claims averaged around 275,000, which is just below this year's low. Again, we have millions more in the labor force now. However, don't think that we have reached full employment. We have plenty who have exhausted their benefits and represent the long-term unemployed. Others are under-employed, which might mean they are employed part-time but desire to be employed full time. Add this to those who are laid off even in a better economy and there is room for improvement in the employment numbers even if the weekly claims do not move down from here. Friday's jobs numbers tell us that we are still headed in the right direction with regard to returning to a healthy labor market and ultimately a healthy economy. Not only did the unemployment rate fall below 6.0% for the first time in six years with the addition of almost 250,000 jobs, but there was a significant upward revision of the previous months' numbers, which means the pause in August was not as severe as we originally thought. When the Federal Reserve Board's Federal Open Market Committee meets later this month, these numbers will be on the table for analysis. Until then, it will be interesting to see if the other economic reports for September follow this stronger trend. Keith Stewart 773-529-7000