Chicago's Mortgage Choice - May 19, 2015 Real Estate Trends - Rates Are Still Low

Sometimes we lose our perspective. While rates on home loans have been increasing for the past few weeks, if you read the headlines, it seems like rates are really high right now. They are not. According to the Freddie Mac survey of home loans, the 30-year fixed loan averaged over 5.0% every year from 1975 until 2010, a period of 35 years. That is a generation in which rates have averaged over 7.0% in the long haul. It is only since the financial crisis hit that rates averaged below 5.0% and for the past five years, the average has been a little over 4.0%. Yes, there were a few periods where rates dropped below 4.0%, including early this year. However, when you look at the difference between 7.0% and 4.0%, rates are over 40% below where they have been historically. This is why renting is more expensive than owning right now in most areas of the country. There is another message here that we have been delivering for a while. These low rates are not expected to last forever. Every time rates increase as they have in the past few weeks, we ask ourselves--is this the end of the super low rates? We hope not. However, we keep cautioning our readers that rates are great right now and if you are thinking about purchasing a home, refinancing or even purchasing a car, now is an excellent time. You never know when this sale on money will end. Keith Stewart 773-529-7000

Chicago's Mortgage Choice - May 12, 2015 Real Estate Report - The Three Bears Jobs Report

After a disappointing March jobs report, we will go back to the old nursery library to describe April's numbers. Everyone knows the story about the three bears and Goldilocks. One chair was too big and one chair was too small. But the last chair was "just right." We think that an increase of approximately a quarter of a million jobs for April is just about right as well. Why is that? With regard to the Federal Reserve Board raising interest rates, the last quarter of 2014 had the economy adding an average of over 300,000 jobs per month, or just about a million for the quarter. If that level had continued, the Fed probably would have raised rates by now. The first quarter of this year, we added just under 200,000 jobs per month. While not shabby, it is just not enough jobs to keep the economy improving fast enough. Thus, 223,000 jobs is just right. Not too fast to scare the Fed and strong enough to move the economy forward. This is especially true considering the fact that hourly wage growth was lower than expected. However, the good signs included an increase in the labor force participation rate and a decrease in the unemployment rate to 5.4%, the lowest since May of 2008. Leading up to the report, rates and oil prices increased pretty steeply. While this report may give us some breathing room, it reminds us that these ridiculously low rates will not be with us forever. For those who are thinking of making a purchase, you may be well advised to move quickly before Goldilocks grows out of that chair. Keith Stewart 773-529-7000

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

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

Chicago's Mortgage Choice - March 31, 2015 Real Estate Report - A Crucial Employment Report

Every month the employment report is very, very important. The creation of jobs not only tells us how the economy is performing, the report also tells us how the economy will be performing in the future. When we create a significant number of jobs, we know that these jobs will create more jobs because those who have become employed will spend more money on a variety of goods. This week, we feel that the March employment report is even more important than usual. Why? For one, after the creation of almost 300,000 jobs per month over the past six months, we know that the Federal Reserve Board is getting closer to raising short-term interest rates. Any number close to 300,000 this month may move the Fed to a tipping point. In their most recent meeting the Fed removed the word patience from their guidance but at the same time, indicated that they will not be "impatient." Secondly, we are looking at another number besides the number of jobs created. We are looking at those who have removed themselves from the labor force as a result of the recession. If some of these folks start coming back into the labor force, the unemployment rate could increase or at least stay the same even with a significant number of jobs created. If the economy produces a plethora of jobs and the unemployment number stays steady or rises, this would actually be good news. It means that our economic recovery is finally starting to reach mainstream America. The low labor force participation rate is one reason the Fed has been able to hold off raising rates for so long into the recovery. It is also one reason that wages have not risen as jobs have been created. Hopefully, this will soon change. Keith Stewart 773-529-7000

Chicago's Mortgage Choice - March 17, 2015 Real Estate Trends - We Call a Bottom

It is not often that we go out on a limb and make a prediction about the future. That is because one of our favorite sayings is -- you can't predict the future. However, sometimes we just can't resist. What bottom are we predicting? The rate of home ownership in America. It has been falling for nearly a decade and in the fourth quarter of 2014, it hit the lowest level in over two decades at 63.9 percent, according to the National Association of Realtors. The peak for the home ownership rate was just under 70% during the real estate boom. Why is it going up from here? There is a plethora of reasons. For one, it is getting easier to own a home because credit standards are lower. Secondly, the cost of renting keeps going up and it just makes more economic sense to own. When renting is more expensive than owning, before the benefits of tax deductions and the forced savings of principal reduction are taken into account, then the economic message can't be ignored. The most important reason? The time is right. More jobs are being created and that means the rate of household formation is increasing. A report recently issued by the Lusk Center For Real Estate at the University of Southern California indicates that we are now at pre-recessions levels of household formulations. That means that the Millennials are moving out and they will need places to live. The first quarter of 2015 statistics have not been released yet, but we think we are at or near the bottom and the rate of ownership will rise from here unless there is a major intervening economic variable. Keith Stewart 773-529-7000

Chicago's Mortgage Choice - March 3, 2015 Real Estate Trends - Is it Spring & Jobs Report Time Already?

It sure doesn't feel like spring on the east coast. However, our calendar tells us that it is March and this week we have two important events -- Daylight Saving Time starts this week, which means we must turn our clocks forward and we have another jobs report being released. It seems like we just had a jobs report to comment on, but we must remember that February is a short month. The jobs data has been so strong lately, our guess is that projections are starting to creep up. There was a time not long ago in which 200,000 jobs added was considered a fantastic month. Now 200,000 may be considered a disappointment. If we continue to add jobs at the rate of 250,000 per month, it is possible that the Federal Reserve Board will raise short term rates more quickly than anticipated. Evidence the fact that rates moved up significantly during the week of the last jobs report. The move was not enough to shake the markets nor enough to deter consumers from purchasing homes. However, that does not mean another strong report could not move rates up another notch. The real estate data released in the past week was not especially strong with existing sales slightly lower than expectations and new home sales slightly higher than expectations. Even though the data was not strong, the numbers continued to be improved on a year-over-year basis -- thus the market is moving in the right direction and the very strong pending home sales numbers released on Friday confirms that assessment. Keith Stewart 773-529-7000