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