Chicago's Mortgage Choice - January 12, 2016 Real Estate Report - So The Fed Increased Rates

Many analysts weighed in regarding the "after-effects" of the first rate increase by the Federal Reserve in almost a decade. At least initially, these predictions seem to be bearing out. For example, according to Freddie Mac’s chief economist, Sean Becketti, interest rates should remain at “historically low levels” throughout 2016, in spite of whatever moves the Federal Reserve is expected to make. “We take the Fed at its word that monetary tightening in 2016 will be gradual, and we expect only a modest increase in longer-term rates,” Becketti said. “Mortgage rates will tick higher but remain at historically low levels in 2016.” Yes, we experienced the first increase in the prime rate of banks in almost a decade. But with regard to long-term rates, these rates have barely moved in the weeks after the Fed's action. The rate on the 10-year Treasury note averaged 2.26 in November. On January 5, the rate was 2.25. Of course, world events have intervened to help lower rates as well. Keep in mind that if the Fed continues to raise short-term rates in 2016, it is expected that long-term rates will eventually drift upwards. This would include an increase in rates on home loans. However, though many are expecting more increases, intervening events around the world may very well tie the hands of the Fed with regard to their ability to move as quickly as some are predicting. Domestically, the most recent employment report released Friday is a good indicator of future activity absent of such world influences. The increase in jobs of almost 300,000 was another sign of strength, and it will help bolster the Fed's plans. The message? Though rates are low right now, those who wait too long to purchase a home may be paying a higher price for that home and higher financing rates as well. Keith Stewart - 773-529-7000

Chicago's Mortgage Choice - December 29, 2015 Real Estate Report - Predictions For The New Year

As we start a new year, there is no shortage of predictions with regard to the real estate markets. Here is where the experts have weighed in: Realtor.com®: Home sales are poised to zoom to the highest levels since 2006 next year, according to a 2016 housing forecast issued by realtor.com®. Gains in new-home construction and existing home sales are both expected to push total home sales to the highest levels in years. The new-home construction market is expected to see the most gains in 2016, with realtor.com® forecasting a 12 percent year-over-year increase in housing starts and a 16 percent year-over-year growth in new home sales. Fannie Mae: “We see consumer spending as the biggest driver of growth moving into 2016,” said Fannie Mae Chief Economist Doug Duncan. “An uptick in average hourly earnings and low unemployment numbers are contributing to a positive outlook for consumer spending. The supply of existing homes remains lean, putting significant upward pressure on home prices. Meanwhile, we expect interest rates to rise only gradually through next year, and an improving income trend should help support affordability.” Redfin: Housing projections for next year include slowing price increases and sales growth, easier credit, more first time homebuyers and continued inventory shortages. Redfin sees home prices increasing in the 3.5 percent to 4.5 percent range next year. It looks like the consensus is for moderate real estate growth and moderate interest rate increases, with new home construction and first time buyers leading the way. Keith Stewart 773-529-7000

Chicago's Mortgage Choice - December 15, 2015 Real Estate Report - The Fed Meeting Finally Arrives

The Federal Reserve Board's Federal Open Market Committee meets today and tomorrow. This is the most anticipated meeting of the Fed in almost a decade. It has been exactly seven years since the Fed moved short-term interest rates to close to zero and it has been over nine years since the Fed actually raised short term rates. Now the markets are expecting the Fed to raise rates from these historically low levels once again. The Federal Reserve has indicated all along that the markets would get plenty of notice before they raise rates. This notice is designed to prevent market shocks. One must remember that the Fed is only raising short-term rates. For example, the Federal Funds Rate is the rate banks charge each other overnight as they balance their holdings. The other rate controlled by the Fed is the Discount Rate, which is the rate they charge banks for borrowing money. All very short-term. The question is--how can these rates affect long-term rates that consumers pay for loans on cars, homes, credit cards and even student loans? Some rates, such as credit cards which are pegged to the prime rates charged by banks, may go up instantly. Other loans which are based upon longer term rates such as home loans, are not as easy to predict. That is where the markets come in. The markets react to what the Fed may do before they take action. For example, rates on home loans have risen in anticipation of the Fed's move. Now the markets will listen to what the Fed will say about potential future interest moves. So let's see what the Fed has to say in addition to whether they raise rates. Keith Stewart 773-529-7000

Chicago's Mortgage Choice - November 3, 2015 Real Estate Report - Real Estate Producing Real Jobs

This is the week that the October employment report is out. As our unemployment rate has fallen with millions of jobs being created each year, many have complained about the level of the jobs being created. Too many of these openings are for lower paid and part-time workers. We think the slow recovery of the real estate market has had something to do with that. The real estate industry is not only a great job creator, but also a creator of higher paying jobs, from construction workers to bankers and lawyers. Judging by the strength of the real estate market this year, it is possible we will see the growth of better jobs soon. And based upon a recent report that was released by the Mortgage Bankers Association, things are only going to get better in the real estate market in the future. Nearly 16 million new households are expected in the U.S. housing market by 2024, which Mortgage Bankers Association economists said should lead to much greater demand for both renter- and owner-occupied housing. MBA Vice President of Research and Economics Lynn Fisher added, "With an average of 1.6 million additional households per year, housing market growth over the next decade could be among the strongest the U.S. has ever seen." If we are right, then real estate could bring us to the final stages of our recovery and make it complete. We may not see a reflection of this theory in this week's jobs report, but it does explain why the Federal Reserve Board keeps holding off on raising rates while still telling us to be prepared because a rate hike is coming. Builders are already talking about a shortage of skilled laborers. To put these numbers in perspective, it took our country almost 250 years to grow to 125 million households. Now we will see 16 million added in ten years. And that does not even include the housing stock which will have to be replaced because of age. Keith Stewart 773-529-7000

Chicago's Mortgage Choice - October 27, 2015 Real Estate Trends - Actions and Words Revisited

2015 has been an exciting time for the markets when meetings of the Federal Reserve Board's Open Marketing Committee occur. When the markets get excited, stocks, rates and more all seem to get more volatile. The interesting thing about all of this is that the Fed has not done much this year. They have discussed raising rates and said they were going to raise rates, but they haven't. And that is why we keep saying that the Fed's words are so important. As a matter of fact, the release of the minutes of the Fed meetings a few weeks after the meeting are just as entertaining as the meeting itself. For the most part, the markets are expecting no action again this week. There is no meeting in November and that means that if the Fed does not raise rates, they have only one last meeting in December to fulfil their prediction of a rate increase in 2015. However, that prediction does not make an increase a certainty. The Fed's words always leave them an alternative path. This is why the economic data released this week and next will be so important even though it comes after the Fed meeting. This week we have readings on new home sales, economic growth for the third quarter and personal income and spending. Next week we have the employment report. This data will carry more weight with regard to the Federal Reserve's next move than the Fed's words. After all, aren't actions supposed to speak louder than words? This data is real economic action. Keith Stewart 773-529-7000

Chicago's Mortgage Choice - October 13, 2015 Real Estate Report - The next really important number

Now that the September jobs report is behind us and we witnessed a slowdown in the creation of jobs, it will be interesting to see if the market's fear of a general economic slowdown is well founded. That is why the release of the third quarter snapshot of economic growth at the end of October will be very important. The economy has been up and down this year. The first quarter was slow and the second quarter saw more robust growth. Many economists are expecting a "regression towards the mean" this quarter. Before we get too worked up about this number, there are a few points that should be made about the statistic. First, it is a measure of past growth, and not indicative of what is happening now. It is also subject to future revisions and the future revisions will give a better view of the second half of the third quarter. Finally, the Federal Reserve Board meets again the same week as the data is released, but they conclude the meeting one day beforehand. Therefore, the Fed will release their results without the benefit of seeing this important snapshot of our economy. As of now, the markets are betting that the Fed will hold off rate increases again in October based upon the disappointing jobs data, as well as other reports showing that manufacturing is slowing. Even the strong growth we have seen in the real estate sector seems to be slowing a bit, though this sector still is one of the shining stars in the 2015 economy. For now it looks like real estate will have to carry us through this segment of our economic recovery. Thus, it is great news that recent reports have shown homes as affordable as ever in 2015. Keith Stewart 773-529-7000

Cicago's Mortgage Choice - October 6, 2015 Real Estate Report - Jobs: Could Higher Rates Be Good?

If you want a good indication of whether the Federal Reserve Board might raise interest rates in their October or December meetings, last week's employment report gives us a hint. The numbers were disappointing with an increase of under 150,000 jobs and a downward revision in the previous months' data. This means that there is less pressure on the Fed to move quickly, especially considering the fact that wage inflation continues to be muted. The report continues our good news with regard to low interest rates. Apparently, we are going to have a fall sale on real estate with home price increases also moderating. On the other hand, many analysts are now thinking that the Fed raising short-term rates would be good for the economy. Why is that so? Right now the Fed has created a great amount of uncertainly regarding the anticipated rate increase. The markets, companies and consumers do not like uncertainty. Rampant uncertainty was one reason our recovery from the great recession was so long and arduous. For example, uncertainly keeps companies from investing in the long-term, and that includes adding permanent workers. Just a week after the Fed released its statement delaying the expected rate hike in which they indicated that there was major uncertainty created because of international events, Chairwoman Yellen was out speaking about the probability of a rate hike this year -- “Most FOMC participants, including myself, currently anticipate...an initial increase in the federal funds rate later this year, followed by a gradual pace of tightening thereafter,” Yellen said. The Fed just can't keep talking about and then taking no action without creating uncertainty. Keith Stewart 773-529-7000