Chicago's Mortgage Choice - August 25, 2015 Real Estate Trends - The Dollar, Oil Prices and Rates

For months the markets have been totally focused upon how many jobs are added each month and how this might bring us closer to increases in rates. It is obvious that every month of more than 200,000 jobs added gets us closer and closer. But employment is not the only variable affecting the Federal Reserve Board's thinking. This month when China devalued their currency in a move they said would let market forces set the value, one of these variables was front and center. This variable is the value of the U.S. dollar. Why do we care about the value of the dollar? In the past year, the value of the dollar has gotten considerably stronger than other foreign currencies. This is actually good news because our economy seems to be getting stronger while others languish. To a consumer a stronger dollar is good because it lowers the cost of goods bought overseas and even makes vacations cheaper. It is bad for U.S. companies that do business overseas because our exports become more expensive. So a stronger dollar is a double-edged sword for our economy and thus the Federal Reserve Board. Overall, a strong dollar is good because it lowers the risk of inflation. And inflation is exactly what the Fed is looking to protect us from when they raise rates. With oil and gas prices going down and the dollar getting stronger, the risk of inflation is going down. Plus, the risk to our economy is rising and the recent drop in our stock market certainly reflects worries concerning this risk. The question is-will these factors convince the Fed to wait longer before they raise rates? At least for now, we have the best of all worlds -- a recovering economy, low rates, low gas prices and cheaper vacations to Europe! Keith Stewart 708-925-2562

Chicago's Mortgage Choice - August 11, 2015 Real Estate Report - The Fed and Employment Data

The Federal Reserve's Open Market Committee met at the end of July. While they did not give a date to raise interest rates, they sounded optimistic that things were improving -- "The labor market continued to improve, with solid job gains and declining unemployment," the Fed statement said. And they are getting the markets ready with statements such as these: "The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the labor market." Thus the importance of last Friday's employment data. There are only two reporting months for jobs between now and the next meeting of the Fed. Friday was one of these dates. What did it show? A solid gain of 215,000 jobs and a steady unemployment rate of 5.3%. Meanwhile, the labor participation rate remains stuck at a 62.6%, the lowest since the 1970's, and wages grew 0.2% last month, consistent with the growth of the past year. This data definitely tells us that, while we are creating jobs, we still have a long way to go with regard to wage growth and job market participation. The report brings the Fed closer to raising rates, but does not make an increase in rates in September a certainty. We must emphasize again that the Fed raising short-term interest rates does not necessarily mean that rates will skyrocket tomorrow. On the other hand, it will tell us that our era of record low rates is likely over and those who are looking for a better time to finance a major purchase such as a car or a home had better get moving. Keith Stewart 773-529-7000

Chicago's Mortgage Choice - July 28, 2015 Real Estate Report - Lower Gas Prices on the Way?

Even before the Iran deal was announced, market analysts were predicting that lower gas prices were on the horizon. Certainly, the optimism over the Iran deal has increased this speculation. In reality, the deal might help more Iranian oil get to western markets, yet we know that this agreement still has to go through the "political process." That does not stop optimism, and CNN/Money recently published a story saying that we could see gas prices at $2.00 per gallon, especially after the summer driving season comes to an end. Again, even without the deal being implemented, analysts were bullish on lower gas prices as world production was rising. The next question is--will that hurt or help our economy? On the plus side, lower gas prices should bolster consumer spending, while lowering the threat of inflation. This could help moderate future rate increases. On the negative side, our energy sector would be negatively affected and areas dependent upon those sectors would be hurting as well. The overall effect would definitely be positive. We should remember that the energy sector affects all industries. There has even been a recent study that has indicated that falling gas prices can shorten the time it takes a house to sell and can increase the selling price. The study was published by Florida Atlantic University and Longwood University. We certainly understand that lower gas prices can affect demographics with more moving closer to cities when gas prices are higher. Will gas prices fall and by how much? That remains to be seen but the possibility is intriguing. Keith Stewart 773-529-7000

Chicago's Mortgage Choice - July 21, 2015 Real Estate Trends - Could Rising Rents Hurt Ownership?

The prevailing opinion is that rising rents will cause more consumers to purchase homes. This is absolutely the case as you have seen statistics published time and time again that show it is actually cheaper to own in most areas of the country as opposed to renting. In addition, the stats continue to show rents rising from month-to-month and year-to-year. So how could rising rents hurt home ownership? If you are a renter, you are likely spending a greater portion of your income towards your rent. Therefore, as rents rise, it is harder and harder to save for a down payment. That is why many Millennials are staying at home with their parents and when they move out, they are purchasing instead of renting. But for others, it gets harder. What does this mean? For most, it means that the faster you become a homeowner, the better. Once you are a homeowner, you are protected from inflationary increases in payments as only a small portion of your payment (taxes and insurance and association fees) is subject to annual increases. Eventually, more apartments will be built and the rent/ownership equation should even out. For now, we are seeing first time homebuyers starting to awaken to the fact that sooner is better with regard to home ownership. Keith Stewart 773-529-7000

Chicago's Mortgage Choice - June 16, 2015 Real Estate Report - Here Comes The Fed

For a period of time which was unprecedented, the meetings of the Federal Open Market Committee of the Federal Reserve Board meant nothing to the average American and the markets. After the financial crisis hit, the Fed moved rates down to historic lows. And when the economy was slow to recover, the Fed kept fiscal stimulus going by purchasing the mortgage backed securities and Treasuries. Yet, after this was accomplished there was not much to do until the economic recovery started moving. The economy is producing over two millions jobs per year and now that the economic recovery is much more solid, the Fed is back in the news. Last year, they stopped the aggressive purchase of securities. And now it is inevitable that they will start raising short-term interest rates as the recovery continues to get stronger. Chairperson Yellen as much as guaranteed it in a speech last month. Thus, all eyes will be on the FOMC meeting as it convenes today. In general, we are not looking for the Fed to raise rates this week. But we are looking for a better indication as to when they might make a move at a later meeting, now most likely in September, after the second quarter economic data is released. The markets are already speculating as to how quickly the second move may come. In other words, when rates start up again, how fast will they move? Keep in mind that the Fed directly controls short term rates but only indirectly affects long-term rates through their actions. And long term rates have already started their move upward in anticipation of the Fed's moves. Keith Stewart 773-529-7000

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