Chicago's Mortgage Choice - June 26, 2018 Real Estate Report - The Fed's Strong Message

We now have had some time to decipher the Federal Reserve Board's statement after their meeting last week. The tone of the message can be described as hawkish. The Fed used words that were a bit stronger with regard to the economy and the future of interest rates. For example, economic growth was described as solid, rather than moderate as in their previous missives. This growth is being supported by a pick-up in household spending and a decline in unemployment. Though they are still using the term "gradual increases" to describe their rate hikes, the statement pointed to the members' opinion that two more rate increases were in the cards for this year. In other words, the pace of gradual increases seems to be accelerating. The Fed no longer is worried that inflation is below their 2.0% target rate because inflation is now close to their short-term target and the focus appears to be shifting on the side of keeping inflation from moving higher from here. While the markets seem to find the path ahead inevitable, we must remind our readers that there is always the possibility of intervening events which could cause the Fed to change their course. In the past we have seen natural disasters, political upheaval, strikes, terrorist incidents and more. We can't foresee any of these and everyone hopes they don't happen. However, we need to understand that predictions are just that. No one can ordain the future. And that is what makes the markets and life interesting. Keith Stewart - 773-529-7000

Chicago's Mortgage Choice - June 19, 2018 Real Estate Report - The Fed's Announcement

As expected, the Federal Reserve Board's Open Market Committee met last week and announced that they would be raising short-term rates by 0.25%. Since the move was anticipated, there was no major reaction by the markets, excepting for the usual increase in rates in anticipation of the decision and subsequently a little easing as the meeting grew closer. This was the seventh time the Fed had raised rates by 0.25% in the past three years during their period of rate "normalization" from the historic lows of the recession and slow recovery. The big concern for the markets was the statement which accompanied the announcement. As usual, the markets were looking for an assessment of the economy, as well as hints of the pace of future rate increases this year. It seems that the members of the committee are ready to continue increasing rates as much as two more times this year. Some were searching for a hint that rates are coming close to what the Fed considers a normalized level, but that was nowhere to be found. As we have discussed previously, it is an open question where that level is located. When the Fed defines that level, then we will have a better idea of where rates will eventually settle if the economy does not falter. There was one more important meeting last week. This was the summit with North Korea. Though it was not expected that any breakthroughs were to come from this meeting, it was expected that a positive process would begin. Certainly, the statements made after the meeting were quite hopeful and the meeting itself was a breakthrough. Between international trade and other tensions in the spotlight this year, there has been a lot of caution in the markets contributing to the volatility we have seen. Any easing of tensions could be helpful in this regard. Keith Stewart 773-529-7000

Chicago's Mortgage Choice - May 29, 2018 Real Estate Report - Rates: The New Normal?

Interest rates have been rising this year. This is not surprising considering the fact that the economy continues to expand, we have added a tax cut into the equation and the Federal Reserve has been raising interest rates for the past two years. Most analysts are predicting rates to continue to increase. On the other hand, rates rose during the winter of 2016-2017, and rose in 2015 as well. Analysts predicted that those increases would also lead to further higher rates. What makes this time different? For one, the extra stimulus of tax reform, but also the fact that the economic recovery is more mature. We have gradually reached full employment and commodity prices, such as oil, are rising. Thus, while we can't say rates will go up from here, it would be reasonable to at least ponder the next significant question -- how high could rates go from here if they continue to rise? After all, in the past we have experienced rates on home loans over six percent for decades at a time. On the other hand, rates have been so low for such a long time, that we might experience the possibility of a new normal. While very low rates may not be needed now to stimulate the economy, the interest rates supporting a normal economy might be lower than we have experienced before. Recently, San Francisco Fed President/NY Fed President Nominee John Williams called this a potential "new normal." With today's higher housing prices, having a new "lower" normal for interest rates would be a very welcome development. If rates continue to rise, this assumes that this "new level" will be substantively less than what we have experienced historically. Keith Stewart 773-529-7000

Chicago's Mortgage Choice - May 15, 2018 Real Estate Trends - Another Milestone

The economic recovery recently hit an important milestone. It is now officially the second longest expansion in our history. For much of the expansion, the recovery has felt more painful than others. For one, the Great Recession was extremely deep and painful. Therefore, most Americans needed a long-term for their personal recovery from the recession. Secondly, the recovery was quite slow. Sometimes it was so slow it did not seem like a recovery at all. On the other hand, the slow pace of the recovery brought some major advantages to the equation. Interest rates were able to remain low for a longer period of time. We had a sale on money that has lasted most of the previous decade. Additionally, the long life of the recovery can be attributed to the fact that the economy has not overheated during the recovery. Overheated economies bring inflation and rapidly rising interest rates which can turn the economy south in a hurry. Even as rates have risen in the past two years, it has been a slow and gradual process. As a matter of fact, long-term rates have taken their time to react to the Federal Reserve Board's short-term rate hikes. Of course, the next question is--how long will the recovery keep going? We know it can't last forever. Our hope is that when the recovery does pause, it does so in a very mild way, in contrast to the last recession. For now, the old guy is just trudging along. Keith Stewart 773-529-7000

Chicago's Mortgage Choice - May 1, 2018 Real Estate Report - Economic Sweeps Week

The jobs report is the most intensely watched of all monthly economic releases. As far as events are concerned, meetings of the Federal Reserve's Federal Open Market Committee (FOMC) stand as one of the most important events as well. To have them both happen in the same week is somewhat of an anomaly. This week, we will get the pleasure of experiencing both happenings, and it will certainly portend to be an interesting week for market-watchers. The first question is -- will the Fed hike interest rates again at their meeting? We have had increases in December and March, which means that a hike at this meeting is not a certainty. Most observers expect another two to three increases this year and if the Fed holds off this month, a schedule of two additional increases may be slightly more likely. Either way, market watchers will be analyzing the Fed statement for clues regarding the likelihood of future increases. One thing is for sure, the Fed will be watching Friday's jobs report closely, especially after the initial estimate of economic growth in the first quarter came in a tad higher than expectations last week. While employment growth has been very steady overall, there has been volatility from month-to-month. February's numbers were much higher than expected and March's numbers were lower than forecast. Thus, the markets and the Fed will be observing whether this month breaks in one direction or the other -- or perhaps the numbers level out. As always, the Fed will also be paying close attention to the numbers reported on wage growth, an important indicator of the potential for inflation. Keith Stewart 773-529-7000

April 24, 2018 Real Estate Report - The Impact of Trade Battles

There seems to be a lot of rhetoric going back and forth on the topic of trade wars. Much of this debate centers upon the question of whether we are in a trade war or not. We can't answer that question definitively, but certainly we do understand that some of the basic characteristics of a trade war have been implemented and others have been threatened. We have imposed tariffs on other countries' goods and they have done the same to our goods. The important question is not whether this is a full-blown trade war, but what is the impact of the implementation of tariffs? In the short run, we have seen one major impact -- the stock market has become very volatile. As we have previously discussed, this volatility is caused by more than one factor. However, the risk of trade wars certainly is playing a significant part in contributing to volatility. Why are the markets uneasy regarding these tariffs? For one, tariffs raise prices to our consumers. On the other side of the equation, when other countries retaliate against our goods, it hurts the producers of these goods -- from manufacturers to farmers. These two factors can actually balance each other out. For example, higher prices contribute to inflation which can bring higher interest rates. On the other hand, lowering exports can hurt certain sectors of the economy and that might bring rates down. Which side of the equation might win out? It is hard to tell. We actually hope that these "shots being fired" are precursors to the negotiation of better trade agreements that will benefit all parties. In the meantime, there will be some negative impacts and certainly a lot of noise. Keith Stewart 773-529-7000

Chicago's Mortgage Choice - March 20, 2018 Real Estate Report - The Fed Meets Today

The Federal Reserve Board's Open Market Committee meets today and tomorrow. While the vast majority of the world will be going about their business, thousands of financial analysts will be on the edge of their seats trying to determine what the Fed's direction will be. Like all Americans, they are concerned that the Fed will raise short-term rates. However, this action would not be unexpected, and thus it is not the top concern of these analysts. They are more concerned about what the Fed will say about the future. The markets have already built-in two to four rate increases this year into their thinking. But there is a big difference between two increases and four. Market rates have already moved up in anticipation of these rate hikes. Any talk of accelerating inflation from the Fed and the markets could become amped up further. If the Fed indicates that they remain on a slow and steady path of rate increases, we might see the markets calm down a bit. For the most part, the economic news leading up to the meeting does not seem to indicate an overheating economy -- except for last month's jobs report. Existing home sales are constrained due to tight inventories, personal spending increases have been moderate and so has manufacturing growth. A slow and steady expansion actually could be the best news for all concerned, as we would see continued job gains without rates moving up to a point in which the economy starts to be adversely affected. Keith Stewart 773-529-7000