Chicago's Mortgage Choice - June 21, 2016 Real Estate Report - Economic Headwinds

The Federal Reserve Board's decision not to raise interest rates last week was not a surprise by any means. After the weak jobs report for May, the decision was a no-brainer. Thus, the words of the Fed were more important than the decision to stand pat. In their statement, the Fed cut its forecast for U.S. economic growth in 2016 to 2%, down from 2.2% earlier. Chairperson Yellen pointed to "headwinds blowing on the economy" as a factor in this reduced outlook. In addition, the statement indicated that they "expect economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate." This means no increase now and less of a chance of an increase in July and possibly for September. One factor the markets will be watching very closely will be any signs of the kindling of inflation. The Fed continues to have leeway, as long as there is no inflationary pressure. For the past year, we have had one important deflationary factor -- plunging oil prices. Now that oil prices seem to have stabilized close to $50 per barrel, it is time to keep our eyes out for other evidence of rising prices. For example, while the retail sales report released last week was as expected, the news that import and export prices rose more than expected is important in this regard. Producer prices came in higher than expected last week as well. Another factor affecting the markets is the referendum on Britain's proposed exit from the European Union. Most economists have forecasted that such a move could throw the UK into recession. Though we will know the results of the referendum this week, any terms of a separation would still have to be negotiated. We do know that the markets do not like uncertainty and a vote to leave will leave the western world with plenty of uncertainty -- another factor that could tie the hands of the Fed. Keith Stewart - 773-529-7000

Chicago's Mortgage Choice - June 7, 2016 Real Estate Report - Jobs and Yellen

The Chairperson of the Federal Reserve Board spoke at an event at Harvard University on the last Friday of May. The probability for a June or July rate hike increased because of her statement that a rate hike is "probably" appropriate in the near term, given an improvement in economic data. "As I have said in the past, it's appropriate I think for the Fed to gradually and cautiously increase our overnight interest rate over time and probably, in the coming months, such a move would be appropriate," she said. A very important slate of this data was released this week, headlined by the May jobs numbers released one week after Yellen's talk. The job numbers were very weak with only 38,000 jobs added, while the unemployment rate fell from 4.9% to 4.7%. These numbers could be seen as contradictory, but the fact that more people dropped out of the job force, lowering the labor force participation rate, shed doubt about the lower unemployment rate. All in all, it will be seen by the Fed as a sign that the economy is not improving as much as we would like. Other numbers released recently have been mixed, with positive numbers from the real estate sector and consumer outlays, but lower construction spending and slightly lower readings for consumer confidence. What does this mean? The jobs numbers are the most important, and this means that the chances for an immediate rate hike by the Fed have decreased significantly. We won't have to wait long to find out about a rate hike in June as the Fed's Open Market Committee meets next week. Keith Stewart 773-529-7000

Chicago's Mortgage Choice - May 10, 2016 Real Estate Report - Spotlight on Jobs

Just one week after the Federal Reserve Board decided not to raise rates for the first time in 2016, the all-important jobs report was released. The Fed's statement regarding the industry was a mixed message. On the positive side of the coin, the statement indicated that international factors were not as grave a threat to the economy as feared earlier in the year. On the other hand, the Fed acknowledged that economic growth continues to be weak. This weakness was confirmed the last week in April, as the first estimate for economic growth for the initial quarter of 2016 came in below consensus estimates at 0.5%. Even though this number will likely be revised upward in the coming months, it is clear that the economy is as weak as the Fed has indicated. Thus far this year, the greatest areas of strength the economy has been displaying is within the areas of the creation of jobs and the real estate sector. Which brings us back to the employment report. On Friday, the Labor Department indicated that the economy had produced 160,000 jobs in April, less than expected. However, the average hours worked was higher and so were wages. The unemployment rate came in unchanged at 5.0%. What does this mean? The economy has produced approximately 800,000 jobs in the first four months of 2016, which is pretty impressive. The best chance for a revival of economic growth is continued growth in consumer spending and to do that, we need to create jobs. Thus far this year, we are doing just that; however, we will want to make sure that the slower economy will not filter down to employment growth. Keith Stewart 773-529-7000

Chicago's Mortgage Choice - April 26, 2016 Real Estate Report - And They Are Off...

Yes, today we are talking about politicians. And we don't mean "off their rocker" -- just in case you are wondering. What we mean is that they are off and running in a Presidential race. The primaries are in the home stretch and there certainly has been a lot of noise. But as the candidates are finalized, the noise will get even louder. Or, should we say, the rhetoric. Why is the Presidential race important for the markets? The markets obsess over everything. And if a Presidential candidate says something that upsets or is joyful to the markets, the markets will react as if they are already President, even though they are not. Basically, this will be just one more variable factor the markets will have to contend with for most of the year. Along with jobs (next week), the Federal Reserve Board's interest rate decision (this week), oil prices, China and about one hundred other factors. Speaking of the Federal Reserve Board, they announce their decision tomorrow. Most are expecting the Fed not to raise rates at this meeting. Even though the jobs machine has been humming, inflation is nowhere to be seen and most economic reports here and overseas have been less than overwhelming. If they don't raise rates, speculation will be humming when we get to their next meeting, which is in the middle of June. Just in time for the Presidential conventions! Keith Stewart 773-529-7000

April 12, 2016 Real Estate Report - Best of All Worlds Revisited

The first quarter of 2016 is in the books. It was a pretty wild quarter to say the least. We started the quarter with the news that the Federal Reserve had started raising interest rates and plenty of international turmoil. The stock market underwent a healthy correction and based upon the preliminary data for the fourth quarter's economic growth, the economy ended 2015 limping. Many were pessimistic regarding the outlook for 2016 and it seems with good reason. Then the unforeseen happened. The economy created over 600,000 jobs in the first quarter, interest rates moved lower and the stock market recovered all of it's losses to move into "break-even" territory for the year. The fourth quarter's economic growth also turned out to be higher than previously reported with subsequent revisions and even oil prices, which also plunged in the first quarter, recovered somewhat. So where does that leave us for 2016? Are we going to continue to produce jobs, enjoy low interest rates and see the stock market continue to go up from here? That would indeed be the best of all worlds, but unfortunately we can't guarantee this scenario. It would be nice. One factor we should be watching is corporate profits, which are starting to be released for the first quarter. If corporate profits don't start growing again, it is unlikely stocks will continue to prosper. When they meet at the end of the month, the Fed's assessment will be interesting to see. Keith Stewart 773-529-7000

Chicago's Mortgage Choice - March 29, 2016 Real Estate Report - The Fed Has Spoken

In an apparent example of reverse psychology, the markets seemed to have liked what the Federal Reserve Board said after their last meeting. What the Fed said was that they are concerned that the economy is suffering because of economic concerns -- "Since the turn of the year, concerns about global economic prospects have led to increased market volatility and tighter financial conditions in the United States," Chairwoman Janet Yellen stated. Thus, the Fed dialed down their economic growth forecast for the year, as well as the number of rate hikes they expect this year. The stock market rallied after the statement was released, and long-term interest rates fell somewhat. Thus, we are seeing that for now, the stock market likes bad news. Why would that be? Last week we spoke about stocks liking higher oil prices -- for now. Of course, a slower economy means low interest rates, and low rates also represent good news for stocks. Low rates also favor real estate and other sectors of the economy. A word of caution about all of these connections. The markets and the economy can turn quickly and the Fed also said that their plans are subject to change if that happens. In other words, if the economy gets stronger, the Fed statement goes out the window. The economic news released in March did not seem to show a weakening of the economy and this week another jobs report is released on the first day of April. If the economy is still producing a significant amount of jobs, this news will be hard for the Fed to ignore. On the other hand, if wage growth continues to stagnate, then the Fed will have more time to see where the economy is headed before they make their next move. And just to complicate matters, the latest terror attack in Europe is another reminder of how quickly things can move in a completely different direction. Keith Stewart 773-529-7000

Chicago's Mortgage Choice - March 15, 2016 Real Estate Report - Oil Driving the Markets

You use gas produced from oil to drive to the market. Well, apparently the price of oil has been driving the markets all year. While everyone has been watching the Federal Reserve Board for clues as to which way rates are going, we think that the Fed is watching oil prices. While the price of oil does not usually drive the markets, you can see that the stock market and interest rates dropped significantly while oil prices were bottoming earlier this year. Conversely, as the stock market has rebounded in the past few weeks, so have oil prices. As you can guess, longer-term interest rates also have started trending upwards as stocks and oil prices have been rising. This is not to say that these trends will continue, but at least for now, the markets seem to be moving in tandem. As we have pointed out previously, lower oil prices are good for the economy, but the markets get spooked when they move too low. The last time this happened was the depth of the financial crisis and that is when the stock market also hit its low point of the decade. When oil prices become too low along with other commodities, this is when the Fed starts thinking about deflation risks instead of inflationary risks. We think these risks will probably cause the Fed to hold off from raising rates this month, even though our economy is still growing and producing jobs. However, if the price of oil holds at this level or rises further, the Fed will have more flexibility at the next meeting. We should note that the last report on oil inventories showed that the surplus is continuing and thus there is little chance that oil prices will start spiking any time soon. So, enjoy your ride to the market. Keith Stewart 773-529-7000

Chicago's Mortgage Choice - March 1, 2016 Real Estate Report - Another Important Jobs Report

Every month watching the release of the employment data is interesting. However, with the Federal Reserve Meeting coming up in just a few weeks, the jobs report will take on a special meaning. It has been a tumultuous start to the year with stocks, oil prices and interest rates moving lower in tandem. Before the year started, many were predicting the first rate increase of the year by the Fed at the March meeting. Now most analysts have changed their tune in this regard. We should not assume that the Fed has changed their mind. We have already seen stocks trying to rally and a pick-up in consumer inflation for the first time in a while. Add a strong jobs report to the mix, and the speculation about the Fed will start up again. That does not necessarily mean that the Fed will raise rates in March, but even a strong statement about the health of the economy might be enough to affect the markets. One thing is for sure -- the markets are always changing and the changes can come quite rapidly. Thus, we should not take it for granted that stocks are going to have a down year and interest rates are going to hover at record lows all year. This means the markets will be watching the jobs report closely for any evidence that the economy is still producing enough jobs per month in order to put upward pressure on wages. Keith Stewart 773-529-7000

Chicago's Mortgage Choice - February 23, 2016 Real Estate Report - Some are enjoying the sale

While many are not too happy about the stock market retrenching and others who work in the energy industry are suffering through a retrenching, much of America is enjoying the sale going on right now. What is on sale? Gasoline and home loans. If these gas prices hold, we would expect a very busy summer vacation season and this should boost the economy. The American Automobile Association has indicated that the price of gas is now averaging over $1.00 per gallon less than the highs hit in 2015. Lower than expected rates on home loans are fueling an increase in refinancing by homeowners. In mid-February, the share of applications for home loans which were refinances hit over 60% of the total market. Refinancing also puts more cash in consumers' pockets. With the spring real estate season about to start, it remains to be seen whether low rates will also boost home sales. We will add our own speculation. We believe that if the economy continues to produce jobs near the same rate it did in 2015, and if rates stay low, this could be a banner year for real estate. The only issue holding back real estate sales is the lack of inventory. We expect builders to ramp up to meet the demand produced. The bottom line is that owning is cheaper than renting in most areas of the country and the sale on home loans has made homeownership even more affordable. Keith Stewart 773-529-7000

Chicago's Mortgage Choice - February 16, 2016 Real Estate Report - Stock Correction Courtesy of the Fed?

Stocks have had a rough start to the year and many analysts are blaming it on a slowing economy, especially in other parts of the world. We think that the Federal Reserve Board deserves some of the credit for the weakness in stocks. We are not saying the Fed was not justified in raising rates. However, it is likely that some investors involved in the equities market must have come to the realization that the party might be over when it comes to borrowing at such low short-term rates. Did the Fed react too quickly with regard to moving rates up? It is hard to fathom this since they left rates so low for so long. And they warned us for a year that the rate increase was coming. Still, we do get the impression that the bad news around the world could have swayed the Fed to wait another few months. It was almost as if they had said that rates were going up "this year" so many times, they only had one more chance and that was the December meeting. On the other hand, the last jobs report moved our unemployment rate to 4.9%, which is the lowest in eight years. The economy produced 150,000 jobs in January and still the markets were disappointed in the number. The news on job creation is evidence which supports the action by the Fed to move rates upward, even if ever so slightly. Though the stock market may be reacting to the world-wide economic slowdown, there is also more than just a small possibility that the specter of higher short-term rates also is factoring into the equation. Keith Stewart 773-529-7000

Chicago's Mortgage Choice - January 12, 2016 Real Estate Report - So The Fed Increased Rates

Many analysts weighed in regarding the "after-effects" of the first rate increase by the Federal Reserve in almost a decade. At least initially, these predictions seem to be bearing out. For example, according to Freddie Mac’s chief economist, Sean Becketti, interest rates should remain at “historically low levels” throughout 2016, in spite of whatever moves the Federal Reserve is expected to make. “We take the Fed at its word that monetary tightening in 2016 will be gradual, and we expect only a modest increase in longer-term rates,” Becketti said. “Mortgage rates will tick higher but remain at historically low levels in 2016.” Yes, we experienced the first increase in the prime rate of banks in almost a decade. But with regard to long-term rates, these rates have barely moved in the weeks after the Fed's action. The rate on the 10-year Treasury note averaged 2.26 in November. On January 5, the rate was 2.25. Of course, world events have intervened to help lower rates as well. Keep in mind that if the Fed continues to raise short-term rates in 2016, it is expected that long-term rates will eventually drift upwards. This would include an increase in rates on home loans. However, though many are expecting more increases, intervening events around the world may very well tie the hands of the Fed with regard to their ability to move as quickly as some are predicting. Domestically, the most recent employment report released Friday is a good indicator of future activity absent of such world influences. The increase in jobs of almost 300,000 was another sign of strength, and it will help bolster the Fed's plans. The message? Though rates are low right now, those who wait too long to purchase a home may be paying a higher price for that home and higher financing rates as well. Keith Stewart - 773-529-7000