Chicago's Mortgage Choice - January 10, 2017 Real Estate Report - The Employment Situation

We just saw the last unemployment report of 2016. The December numbers came in at 156,000 jobs added for the month, which was a bit lower than expected--but the previous two months were revised upward by almost 20,000. The unemployment rate came in at 4.7%, as expected. Wage growth came in higher than expectations. With the year ending and a changeover in Presidents, it also gives us the chance to see how this important economic indicator is doing, not only for the past year, but for the past several years as well. For all of 2016, the economy gained just over 2 million jobs. This is an impressive number, but it was down from 2.7 million jobs added the year before and 3.1 million jobs added in 2014. In addition, the unemployment rate started 2015 at 5.0% and ended the year at 4.7%. Finally, the labor participation rate started the year at 62.6% and ended the year at 62.7%, virtually flat for the year. It was over 66.0% before the recession hit. Looking back eight years, at the end of 2008, the unemployment rate was 7.3% and reached 10.0% during the first year of the Presidency, when the country was mired in recession. Overall, the economy lost 8.7 million jobs during the recession, which bridged two administrations. Since the end of the recession, we have averaged a net gain in jobs of 190,000 per month, or just under 2.3 million per year. This means we have recovered the jobs lost during the recession and more, but if you average the job gains over 10 years, to include the first stages of the recession, the annual average job gains have totaled much less. In conclusion, we have made up much ground, especially when looking at the unemployment rate. However, there is more work to be done with regards to adding more jobs and increasing the labor participation rate. Keith Stewart 773-529-7000

Chicago's Mortgage Choice - June 21, 2016 Real Estate Report - Economic Headwinds

The Federal Reserve Board's decision not to raise interest rates last week was not a surprise by any means. After the weak jobs report for May, the decision was a no-brainer. Thus, the words of the Fed were more important than the decision to stand pat. In their statement, the Fed cut its forecast for U.S. economic growth in 2016 to 2%, down from 2.2% earlier. Chairperson Yellen pointed to "headwinds blowing on the economy" as a factor in this reduced outlook. In addition, the statement indicated that they "expect economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate." This means no increase now and less of a chance of an increase in July and possibly for September. One factor the markets will be watching very closely will be any signs of the kindling of inflation. The Fed continues to have leeway, as long as there is no inflationary pressure. For the past year, we have had one important deflationary factor -- plunging oil prices. Now that oil prices seem to have stabilized close to $50 per barrel, it is time to keep our eyes out for other evidence of rising prices. For example, while the retail sales report released last week was as expected, the news that import and export prices rose more than expected is important in this regard. Producer prices came in higher than expected last week as well. Another factor affecting the markets is the referendum on Britain's proposed exit from the European Union. Most economists have forecasted that such a move could throw the UK into recession. Though we will know the results of the referendum this week, any terms of a separation would still have to be negotiated. We do know that the markets do not like uncertainty and a vote to leave will leave the western world with plenty of uncertainty -- another factor that could tie the hands of the Fed. Keith Stewart - 773-529-7000

Chicago's Mortgage Choice - June 7, 2016 Real Estate Report - Jobs and Yellen

The Chairperson of the Federal Reserve Board spoke at an event at Harvard University on the last Friday of May. The probability for a June or July rate hike increased because of her statement that a rate hike is "probably" appropriate in the near term, given an improvement in economic data. "As I have said in the past, it's appropriate I think for the Fed to gradually and cautiously increase our overnight interest rate over time and probably, in the coming months, such a move would be appropriate," she said. A very important slate of this data was released this week, headlined by the May jobs numbers released one week after Yellen's talk. The job numbers were very weak with only 38,000 jobs added, while the unemployment rate fell from 4.9% to 4.7%. These numbers could be seen as contradictory, but the fact that more people dropped out of the job force, lowering the labor force participation rate, shed doubt about the lower unemployment rate. All in all, it will be seen by the Fed as a sign that the economy is not improving as much as we would like. Other numbers released recently have been mixed, with positive numbers from the real estate sector and consumer outlays, but lower construction spending and slightly lower readings for consumer confidence. What does this mean? The jobs numbers are the most important, and this means that the chances for an immediate rate hike by the Fed have decreased significantly. We won't have to wait long to find out about a rate hike in June as the Fed's Open Market Committee meets next week. Keith Stewart 773-529-7000

Chicago's Mortgage Choice - May 10, 2016 Real Estate Report - Spotlight on Jobs

Just one week after the Federal Reserve Board decided not to raise rates for the first time in 2016, the all-important jobs report was released. The Fed's statement regarding the industry was a mixed message. On the positive side of the coin, the statement indicated that international factors were not as grave a threat to the economy as feared earlier in the year. On the other hand, the Fed acknowledged that economic growth continues to be weak. This weakness was confirmed the last week in April, as the first estimate for economic growth for the initial quarter of 2016 came in below consensus estimates at 0.5%. Even though this number will likely be revised upward in the coming months, it is clear that the economy is as weak as the Fed has indicated. Thus far this year, the greatest areas of strength the economy has been displaying is within the areas of the creation of jobs and the real estate sector. Which brings us back to the employment report. On Friday, the Labor Department indicated that the economy had produced 160,000 jobs in April, less than expected. However, the average hours worked was higher and so were wages. The unemployment rate came in unchanged at 5.0%. What does this mean? The economy has produced approximately 800,000 jobs in the first four months of 2016, which is pretty impressive. The best chance for a revival of economic growth is continued growth in consumer spending and to do that, we need to create jobs. Thus far this year, we are doing just that; however, we will want to make sure that the slower economy will not filter down to employment growth. Keith Stewart 773-529-7000

Chicago's Mortgage Choice - April 26, 2016 Real Estate Report - And They Are Off...

Yes, today we are talking about politicians. And we don't mean "off their rocker" -- just in case you are wondering. What we mean is that they are off and running in a Presidential race. The primaries are in the home stretch and there certainly has been a lot of noise. But as the candidates are finalized, the noise will get even louder. Or, should we say, the rhetoric. Why is the Presidential race important for the markets? The markets obsess over everything. And if a Presidential candidate says something that upsets or is joyful to the markets, the markets will react as if they are already President, even though they are not. Basically, this will be just one more variable factor the markets will have to contend with for most of the year. Along with jobs (next week), the Federal Reserve Board's interest rate decision (this week), oil prices, China and about one hundred other factors. Speaking of the Federal Reserve Board, they announce their decision tomorrow. Most are expecting the Fed not to raise rates at this meeting. Even though the jobs machine has been humming, inflation is nowhere to be seen and most economic reports here and overseas have been less than overwhelming. If they don't raise rates, speculation will be humming when we get to their next meeting, which is in the middle of June. Just in time for the Presidential conventions! Keith Stewart 773-529-7000

April 12, 2016 Real Estate Report - Best of All Worlds Revisited

The first quarter of 2016 is in the books. It was a pretty wild quarter to say the least. We started the quarter with the news that the Federal Reserve had started raising interest rates and plenty of international turmoil. The stock market underwent a healthy correction and based upon the preliminary data for the fourth quarter's economic growth, the economy ended 2015 limping. Many were pessimistic regarding the outlook for 2016 and it seems with good reason. Then the unforeseen happened. The economy created over 600,000 jobs in the first quarter, interest rates moved lower and the stock market recovered all of it's losses to move into "break-even" territory for the year. The fourth quarter's economic growth also turned out to be higher than previously reported with subsequent revisions and even oil prices, which also plunged in the first quarter, recovered somewhat. So where does that leave us for 2016? Are we going to continue to produce jobs, enjoy low interest rates and see the stock market continue to go up from here? That would indeed be the best of all worlds, but unfortunately we can't guarantee this scenario. It would be nice. One factor we should be watching is corporate profits, which are starting to be released for the first quarter. If corporate profits don't start growing again, it is unlikely stocks will continue to prosper. When they meet at the end of the month, the Fed's assessment will be interesting to see. Keith Stewart 773-529-7000

Chicago's Mortgage Choice - March 29, 2016 Real Estate Report - The Fed Has Spoken

In an apparent example of reverse psychology, the markets seemed to have liked what the Federal Reserve Board said after their last meeting. What the Fed said was that they are concerned that the economy is suffering because of economic concerns -- "Since the turn of the year, concerns about global economic prospects have led to increased market volatility and tighter financial conditions in the United States," Chairwoman Janet Yellen stated. Thus, the Fed dialed down their economic growth forecast for the year, as well as the number of rate hikes they expect this year. The stock market rallied after the statement was released, and long-term interest rates fell somewhat. Thus, we are seeing that for now, the stock market likes bad news. Why would that be? Last week we spoke about stocks liking higher oil prices -- for now. Of course, a slower economy means low interest rates, and low rates also represent good news for stocks. Low rates also favor real estate and other sectors of the economy. A word of caution about all of these connections. The markets and the economy can turn quickly and the Fed also said that their plans are subject to change if that happens. In other words, if the economy gets stronger, the Fed statement goes out the window. The economic news released in March did not seem to show a weakening of the economy and this week another jobs report is released on the first day of April. If the economy is still producing a significant amount of jobs, this news will be hard for the Fed to ignore. On the other hand, if wage growth continues to stagnate, then the Fed will have more time to see where the economy is headed before they make their next move. And just to complicate matters, the latest terror attack in Europe is another reminder of how quickly things can move in a completely different direction. Keith Stewart 773-529-7000