Tuesday, May 29, 2018

Chicago's Mortgage Choice - May 29, 2018 Real Estate Report - Rates: The New Normal?

Interest rates have been rising this year. This is not surprising considering the fact that the economy continues to expand, we have added a tax cut into the equation and the Federal Reserve has been raising interest rates for the past two years. Most analysts are predicting rates to continue to increase. On the other hand, rates rose during the winter of 2016-2017, and rose in 2015 as well. Analysts predicted that those increases would also lead to further higher rates. What makes this time different? For one, the extra stimulus of tax reform, but also the fact that the economic recovery is more mature. We have gradually reached full employment and commodity prices, such as oil, are rising. Thus, while we can't say rates will go up from here, it would be reasonable to at least ponder the next significant question -- how high could rates go from here if they continue to rise? After all, in the past we have experienced rates on home loans over six percent for decades at a time. On the other hand, rates have been so low for such a long time, that we might experience the possibility of a new normal. While very low rates may not be needed now to stimulate the economy, the interest rates supporting a normal economy might be lower than we have experienced before. Recently, San Francisco Fed President/NY Fed President Nominee John Williams called this a potential "new normal." With today's higher housing prices, having a new "lower" normal for interest rates would be a very welcome development. If rates continue to rise, this assumes that this "new level" will be substantively less than what we have experienced historically. Keith Stewart 773-529-7000

Tuesday, May 15, 2018

Chicago's Mortgage Choice - May 15, 2018 Real Estate Trends - Another Milestone

The economic recovery recently hit an important milestone. It is now officially the second longest expansion in our history. For much of the expansion, the recovery has felt more painful than others. For one, the Great Recession was extremely deep and painful. Therefore, most Americans needed a long-term for their personal recovery from the recession. Secondly, the recovery was quite slow. Sometimes it was so slow it did not seem like a recovery at all. On the other hand, the slow pace of the recovery brought some major advantages to the equation. Interest rates were able to remain low for a longer period of time. We had a sale on money that has lasted most of the previous decade. Additionally, the long life of the recovery can be attributed to the fact that the economy has not overheated during the recovery. Overheated economies bring inflation and rapidly rising interest rates which can turn the economy south in a hurry. Even as rates have risen in the past two years, it has been a slow and gradual process. As a matter of fact, long-term rates have taken their time to react to the Federal Reserve Board's short-term rate hikes. Of course, the next question is--how long will the recovery keep going? We know it can't last forever. Our hope is that when the recovery does pause, it does so in a very mild way, in contrast to the last recession. For now, the old guy is just trudging along. Keith Stewart 773-529-7000

Tuesday, May 1, 2018

Chicago's Mortgage Choice - May 1, 2018 Real Estate Report - Economic Sweeps Week

The jobs report is the most intensely watched of all monthly economic releases. As far as events are concerned, meetings of the Federal Reserve's Federal Open Market Committee (FOMC) stand as one of the most important events as well. To have them both happen in the same week is somewhat of an anomaly. This week, we will get the pleasure of experiencing both happenings, and it will certainly portend to be an interesting week for market-watchers. The first question is -- will the Fed hike interest rates again at their meeting? We have had increases in December and March, which means that a hike at this meeting is not a certainty. Most observers expect another two to three increases this year and if the Fed holds off this month, a schedule of two additional increases may be slightly more likely. Either way, market watchers will be analyzing the Fed statement for clues regarding the likelihood of future increases. One thing is for sure, the Fed will be watching Friday's jobs report closely, especially after the initial estimate of economic growth in the first quarter came in a tad higher than expectations last week. While employment growth has been very steady overall, there has been volatility from month-to-month. February's numbers were much higher than expected and March's numbers were lower than forecast. Thus, the markets and the Fed will be observing whether this month breaks in one direction or the other -- or perhaps the numbers level out. As always, the Fed will also be paying close attention to the numbers reported on wage growth, an important indicator of the potential for inflation. Keith Stewart 773-529-7000