July 15, 2014 Real Estate Report - Still Work To Be Done

As the euphoria wears off in the aftermath of our stellar June employment release, we realize that there is still work to be done in order to fully recover from the financial crisis and deep recession. The recovery has been going on for five long-years, but it is still not fully mature. For example, while we have recovered all jobs lost during the recession, we have not added enough jobs to accommodate the population growth that has occurred during and since the recession. Even at today's increased pace of job growth, this void will not be filled for two years or longer. Furthermore, while the unemployment rate has dropped to 6.1% -- which was the lowest in almost six years, the "underemployment" rate still stands at 12.1%. The underemployment rate includes those who are working part-time because they can't find full time jobs. The labor participation rate stands at 62.8% which is a 36-year low. It is true that the baby boomer generation is reaching retirement age and this contributes to the labor participation statistic. On the other hand, it is not merely how many jobs are created -- it is also what type of jobs are created. America needs more high paying full-time jobs. So before we celebrate the end of bad times, we must understand that there is truly more work to accomplish. The fact that we have more room to grow is actually good news for right now because this gives the Federal Reserve Board latitude to keep interest rates lower for a longer period of time and not worry about the economy overheating. The markets will cause rates to rise as we witness the start of the cycle of better times. If this surge in job hiring spreads to the real estate markets, we will start making up ground in a hurry instead of the snail's pace of the past five years. If that happens, expect the Fed to act much more quickly. Keith Stewart 773-529-7000

July 8, 2014 Real Estate Report - Mid-Year Employment Reading

We hope that everyone enjoyed the 4th of July Holiday. There were plenty of fireworks during the weekend but the day before the holiday started the government provided their own fireworks with the release of a strong jobs report for the month of June. Most analysts were expecting a decent gain in jobs at just over 200,000 and for the unemployment to remain steady at 6.3%. The numbers were stronger than expected, especially when considering the fact that the previous months of jobs gains were revised upwards. In June the economy added 288,000 jobs which is robust by anyone's standards. The unemployment rate dipped to 6.1% and the decrease cannot be attributed to people leaving the workforce as the labor participation rate stayed steady. Though these numbers are subject to revision in later months, the fact that ADP released a similar number for private payroll growth the day before just confirmed the fact that the job market is indeed heating up. What does that mean? This is just what the doctor ordered for the economy. More jobs should translate into higher levels of consumer spending and especially spending on big ticket items such as cars, furniture and houses. A stronger housing market and automobile industry should create more jobs and the virtuous cycle will be created. If job creation continues at this pace, we should expect a pickup in interest rates and the growth in home prices should continue. We know we have said this before -- the combination of low rates and low housing prices will not last forever. While the stock market has been strong, rates have remained low. However, this news might just be the beginning of the end of the nation's sale on money. Keith Stewart 773-529-7000

July 1, 2014 Real Estate Report - The Oil Dilemma

If you read the analyst's projections, you get the impression that the price of oil should be falling because there is excess supply on the horizon. Demand is slowing in developed countries such as ours and new technology is helping us find oil where we have never gone before. "Tightening fuel efficiency standards for automobiles and changing consumer preferences look set to send U.S. gasoline demand back on the declining course on which it embarked in 2007," the Paris-based International Energy Agency said in its latest forecast published recently. Of course, this report can't predict political and other turmoil that occurs around the world. The conflict in Iraq has contributed to a spike in oil prices and because it heated up as the summer driving season was getting underway, there is a concern that gas prices will also spike. Gas price increases can affect consumer spending and with the economy recovering from the winter slowdown, the timing for price increases is not great. Although we are not sure that there is ever a good time for higher energy prices. Any data which could lead to a long-term increase in inflationary expectations can affect interest rates as well. In this case, the "long-term" projections from the International Energy Agency represent good news. In the short run we will always have to deal with interruptions in supply. Some of these may be caused by natural disasters which are never predictable. Remember, we are about to enter hurricane season. This week we will get a reading which will tell us how well we are recovering from the cold winter. The employment report is released early because of the 4th of July Holiday. We have some momentum in the employment sector and most are expecting this good news to continue at least moderately. Any surprise to the upside or downside could affect the stock and bond markets and thus the economy. What is interesting is the fact that this report will be released right before the holiday weekend. The markets are typically quiet during this summer holiday period but this week could be an exception. Keith Stewart 773-529-7000

June 24, 2014 Real Estate Report - The Student Loan "Crisis"

A recession is like an earthquake. There are many aftershocks and if the earthquake is really bad, some of the aftershocks can be strong earthquakes in themselves. We have been dealing with the aftershocks of the recession for many years because of the severity of this recession. Today we are dealing with another one in the form of student loans. The President this month moved to ease requirements for those buried in student loans. Congressional action is being considered. How did we get here? The recession. During the recession, younger people could not find jobs, so more went to college. Of course, they borrowed money to do so and when they graduated they have been burdened with big student loan debts. Only getting jobs was still not so easy. While this generation struggles with the debt loads and finding their way, it has affected household formation which affects our real estate market as well as other sectors of the economy. Easing repayment requirements will help, but in the long run this is another obstacle that must be overcome over time. Time may not heal all wounds, but a better job market solves many of the foundational problems we have faced. Speaking of the jobs market, next week we approach the July 4th Holiday on Friday. We have major economic releases to assess this week such as personal income and spending as well as consumer confidence. But next week we have the early release of the employment report because of the Holiday. We know this is a time of celebration of our Nation's birthday. However, the fireworks may be starting early as the report will be released at a time when many analysts and traders are leaving town. This could make for an interesting week for the markets. Keith Stewart 773-529-7000

June 17, 2014 Real Estate Report- Beyond The Numbers

We have received some good news over the past few months regarding employment growth. The creation of jobs is the most important function of the economy. When people can find jobs, this creates confidence. When people are secure in their jobs they tend to spend more. This includes large purchases such as houses and cars. Of course, the real estate sector is another huge factor within our economy. So, the next question is--how good are the job numbers? Here is the good news, May represented the fourth consecutive month of jobs gains over 200,000 and that is the first time that has happened since 1999. On the negative side, the labor participation rate was 62.8%, which was unchanged from April. This is the lowest rate in decades. We do understand that this number is affected by the number of people retiring and with baby boomers aging there are record numbers retiring. But it is also affected by the fact that the population has been growing. A few weeks ago, we pointed out that the population growth of our country may be poised to present us with a housing shortage in the future. Well, it also means that we must create more jobs than ever before and that has not happened yet. We lost 8.7 million jobs during the recession. Again, the good news is as of May these jobs have been recovered over the past four years. That is a rate of approximately 180,000 jobs per month. We are now creating jobs at over 200,000 per month. If we can create jobs at a rate of 200,000 to 250,000 per month this would appear to help us catch up with population growth in a few years and lower the unemployment rate further. We believe as more people obtain gainful employment, they will spend more money and this will spur housing and other sectors of the economy which will create more jobs. That is what a virtuous cycle is all about and that is why this "200,000" number is so important. When the Fed meets starting today, you can be sure that these employment numbers will get a lot of attention from the members of the Federal Open Market Committee. Keith Stewart 773-529-7000

June 10, 2014 Real Estate Report - No More Excuses

Over five years ago we suffered the worst recession since the great depression almost 100 years ago. Since then our economic recovery has been the weakest of all recoveries as well. There are many reasons for the weak recoveries. The fact that our real estate market was devastated and needed years to recover was certainly a main factor. But there were other reasons for the stops and starts which were external. We had domestic and world-wide natural disasters from hurricanes and super storms to tsunamis. We will not get into a debate as to whether global warming is causing these extreme weather events but we will acknowledge that they were very, very extreme and caused major damage to populations and property. There were events that were not weather related, of course. There was the fiscal crisis in Europe and political crises at home. We had wars being fought and terrorist events. Many of these events prolonged the recovery and made us wonder whether we would suffer a double dip recession, which never came. 2014 has certainly not been smooth sailing with our famously cold winter and the crisis in Ukraine. However, we believe our economy has recovered to the point that we no longer talk about slipping back in recession. The drop in the economic growth in the first quarter is a testament to that confidence. Economists shrugged off the down quarter almost universally. So what comes next? The sun is shining and there is no more cold winter. We are running out of excuses for the economy being so lackluster during a recovery period. The employment report released on Friday showed continued progress in that regard. The last two months has seen a significant pickup in hiring but the employment report also shows how far we need to go. We have recovered all the jobs lost during the recession, but accounting for population growth during the past six years, we have seven million jobs to go. Economists surveyed by CNN/Money indicate that it would take two years or more at this pace for the unemployment rate to reach 5.5% and wage growth is still anemic. The good news? A slow recovery continues to support low interest rates and hopefully the Federal Reserve Board agrees with that assessment when they meet shortly. Keith Stewart 773-529-7000

June 3, 2014 Real Estate Report - The Relationship Between Stocks and Rates

There is an obvious relationship between the movement of stocks and interest rates. When the economy is doing better, stocks should also improve. This same stronger economy increases inflationary pressures which causes interest rates to rise. In addition, when stocks are doing well, more investors put their money in the stock market as opposed to bonds. So, on days that stocks are doing well, interest rates are increasing which means that bonds are not doing so well. Seems simple, right? Look over the past five years and it is not so simple. For the past five years stocks have done very well as rates have stayed low. What was the cause? The precipitous drop in the stock market during the recession was a factor as much of this bull market is a rebound. Rates have stayed so low during the tepid recovery because the recovery has not been strong enough and there have been no inflationary pressures. In other words, day-to-day you are likely to see stocks rise and an increase in rates, but sometimes long-term trends paint another picture. Why is this important? Long-term trends don't last forever. If the economic recovery heats up from here, we could see rates rise and perhaps stocks will get stronger or perhaps they will fall because investors believe higher rates will stall the recovery. Many think that the pop in rates we had late last year was a partial cause of a slower economy this year, especially with regard to real estate. So if you want to know what rates are doing, stocks are not the only factor. Watch economic reports such as the jobs data we have coming out this week. Full employment would translate into inflationary pressures. However, we are a long, long way away from full employment. Keith Stewart 773-529-7000