Tuesday, April 21, 2015

Chicago's Mortgage Choice - April 21, 2015 Real Estate Report - Are The Markets Moving On?

The Federal Reserve Board has said it again and again. They are raising rates this year. While we still don't know at what meeting the increase will come, the markets have had plenty of time to get used to the fact that rates are going up. So now we find that the markets are now obsessing about what comes next after the Fed fires its first salvo. When will the second move come? How far and how fast will rates be ratcheted up? For their part, the Fed is trying to calm the markets in this regard. For example, Chairwoman Yellen last month made it clear that there will be plenty of notice to the markets before the first increase and that the Fed will not be "impatient" with regard to their moves because the economy is not where it needs to be --- "If underlying conditions had truly returned to normal, the economy should be booming," she said. Investors are anxious about the Fed raising interest rates later this year for the first time in about a decade. But Yellen continues to strongly hint that the Fed won't push interest rates significantly higher anytime soon. (CNN/Money) Periodically, we remind our readers that the Federal Reserve Board directly controls short-term interest rates. When they raise these short-term rates, it does not mean that long-term rates are going up in direct response. It depends upon how the markets perceive the move. The key factor here will be inflation. If the Fed is moving slowly while the economy is heating up and we see signs of inflation, long-term rates could rise faster than short-term rates. If the markets perceive that the Fed is moving ahead of the inflation curve, long-term rates could move more slowly. Keith Stewart 773-529-7000

Tuesday, April 7, 2015

Chicago's Mortgage Choice - April 7, 2015 Real Estate Trends - So, How Was It?

With all the buildup we gave the March unemployment report, the next question is...how was it? Was it really as important a release as we have described? Generally, the jobs data is very important, but this report had the potential for real impact coming on the heels of six months of strong jobs data and being released two weeks after the Federal Reserve Board's Open Market Committee considered how quickly they should raise short-term interest rates. The result was good news with regard to the upcoming rise in interest rates in the form of bad news from the labor sector. The increase of 126,000 jobs was just about half of what was predicted by economist ahead of time. In addition, the previous two months of data were revised down by almost 70,000 jobs. The unemployment rate remained steady at 5.5%. In response to the weak report, market analysts seem to be pointing their fingers at the bad weather we experienced in February, as well as layoffs in the energy sector, by way of explanation. We will note that one soft month does not indicate a trend, especially during a rough winter month and with data that is often revised the following month. But the results will give the Fed some hesitation. What could save us from an imminent rate hike even if this report was a one month anomaly? A strong dollar and low oil prices both lower the threat of inflation. In addition, wage inflation, which remains muted for now, is as important as the number of jobs we create. The key is inflation, or more precisely, the lack of it. Keith Stewart 773-529-7000