October 28, 2014 Real Estate Report - Happy Holidays

It must be the holiday season with so many gifts coming in. What else could explain good economic news combined with lower interest rates and lower oil prices? Even though the stock market is retreating, keep in mind that the Dow was below 12,000 approximately three years ago. Three years ago the unemployment rate averaged just over 8.0% and it is now just below 6.0%. Initial jobless claims were in the vicinity of 400,000 per week and now they are consistently below 300,000. We mentioned last week that it is surprising that rates and oil prices would fall in the face of relatively good economic news. As surprising as it is--we are going to advise you not to look a proverbial gift horse in the mouth. We are going to advise you to enjoy the lower rates and lower gasoline prices for as long as they last. That might be a few days, a few weeks or a few months. Or the markets might reverse themselves by the time you read this commentary. We do believe this week's meeting of the Federal Reserve Board's Federal Open Market Committee will be very interesting. The Fed is going to be reading signs of economic recovery with no inflationary pressures. They are also going to be feeling the worldwide turmoil going on and speculating whether events overseas will affect our recovery. Some are saying that they might extend their bond purchases to keep rates low. We don't think that an announcement of such will be in the cards, but the phrase "considerable time" when referring to future interest rate increases may stay as part of their vernacular. Of course, our speculation is just that -- speculation Keith Stewart 773-529-7000 http://www.newsletterproonline.com/newsletter/originationpro/?newsletter=true&nid=635&uid=9894

October 14, 2014 Real Estate Report - If it is all about jobs, then...

For years we have gone through a tepid recovery from a very deep recession. And all along we have indicated that we don't recover from such an event if Americans are not working. Year after year we waited and waited. Well, the wait is over. The recovery in jobs is more than underway, it has arrived. The average of 220,000 jobs added each month thus far this year -- and the unemployment rate dropping below 6.0% -- is just what the doctor ordered in this regard. This is not to say that we are all the way back. Many of the jobs created have been lower paying jobs, which has held back the pace of personal income growth. In addition, the low labor participation rate tells us that if jobs keep getting created, we will have to absorb many returning to the labor market. On the other hand, the progress we have made will cause a ripple effect throughout the economy. We are on pace to add almost 3 million jobs this year and this will increase consumer spending which will create more jobs. And some of this spending will make the real estate market stronger -- whether it is the purchase of new homes or major renovation projects for existing homes. Already we are seeing the strength in car sales and home improvement projects. But the one area we have not seen strength in this year is within the real estate sector. More recently, we have seen renewed confidence by builders as new home sales have been ramping up. The bottom line is that we can't have a recovery without the creation of jobs and it is the creation of jobs that will bring us a complete real estate recovery. Yes, we still have a long way to go, but if we keep creating jobs at this rate, the road will become a lot shorter. From there, the only question won't be if interest rates will rise -- but when will they rise and how fast. Right now we have the best of both worlds: more hiring and very attractive interest rates. Keith Stewart 773-529-7000

October 7, 2014 Real Estate Report - Nowhere To Go From Here

That is right. We have nowhere to go from here -- and that fact represents good news. Each week the markets watch the first time claims for unemployment to get a reading on the employment numbers. However, that practice may very well have run its course with regard to its importance in the short-term. It is a matter of math. When claims dip below 300,000, as they have for several weeks this year, there is not much room for them to decrease further. A recent article from Bloomberg indicated that we are now at the level of claims not seen since 2006. And there are over five million more people who are participating in today's labor force as compared to 2006. Indeed, during the three previous expansions, weekly jobless claims averaged around 275,000, which is just below this year's low. Again, we have millions more in the labor force now. However, don't think that we have reached full employment. We have plenty who have exhausted their benefits and represent the long-term unemployed. Others are under-employed, which might mean they are employed part-time but desire to be employed full time. Add this to those who are laid off even in a better economy and there is room for improvement in the employment numbers even if the weekly claims do not move down from here. Friday's jobs numbers tell us that we are still headed in the right direction with regard to returning to a healthy labor market and ultimately a healthy economy. Not only did the unemployment rate fall below 6.0% for the first time in six years with the addition of almost 250,000 jobs, but there was a significant upward revision of the previous months' numbers, which means the pause in August was not as severe as we originally thought. When the Federal Reserve Board's Federal Open Market Committee meets later this month, these numbers will be on the table for analysis. Until then, it will be interesting to see if the other economic reports for September follow this stronger trend. Keith Stewart 773-529-7000

September 30, 2014 Real Estate Report - Turning the Corner

If 2014 was a one mile race, we would now be heading down the last lap. It has been an interesting year. We started with a long, cold and snowy winter. We then began to thaw out, and just as the sun started shining, the world seemed to erupt in crisis. But like many obstacles we have faced during the recovery, from natural disasters to fiscal calamities, we seem to move ahead slowly but surely. The big question is, will the last lap feature us gaining speed during the straightaway or will we be hampered by another road block? If the year has been like a one mile race, then the recovery from the recession has been a marathon. Actually, 26.2 miles may not describe the trek we have gone through. But like the year, we are coming into the final lap, though this is a much longer lap. If we gain momentum during the last quarter of the year, we will be able to see, but not reach the finish line. This year we have marked a full five years of recovery, one of the longest recoveries from a recession in history, but also one of the weakest. Many predict two years or more before we can be considered fully recovered, but the last lap of 2014 could change that story. The release of the employment report this Friday will hint of how much speed we will have garnered going into the last lap of 2014. The last report was mildly disappointing but we definitely have seen some momentum built up during the majority of 2014. If the numbers released on Friday include an upward revision of last month's numbers or September's numbers move back towards or over 200,000 jobs added, the one slow report will be seen as nothing more than a pebble in the road instead of a road block. Then we can rev things up and hopefully we don't have a huge snowstorm in November. Can we get a little help, weatherman? Keith Stewart 773-529-7000

September 23, 2014 Real Estate Report - The Fed Transition

The Federal Reserve Board is going through quite a transition. Actually, more than one. The first transition is one of secrecy to transparency. In the past we had to guess at what the Fed was thinking. If they were planning a move, they never wanted to leak the news ahead of time because of what the "anticipation" might do to the markets. Over the past several years, they have transitioned to a more open culture, telegraphing potential moves well ahead of time in order to take that surprise factor out of the equation. The second transition is removing fiscal stimulus from the equation. The financial crisis and ensuing recession was so strong that the level of fiscal stimulus applied was unprecedented -- from record low interest rates to the purchase of hundreds of billions of dollars of Treasuries and mortgages. The Fed has continued to remove the purchase of Treasuries from the equation and they also face the second decision -- when to raise short-term interest rates. Because of the new era of transparency, Chairwoman Janet Yellen has been talking about dates from the time she assumed the seat. At first, talk of raising rates caused the markets to react as long-term interest rates rose. But as time went on, this effect has diminished. We are not sure if that is because of economic concerns, world-wide conflicts which have flared up or because the markets just got used to the message. The latest meeting of the Fed's Federal Open Market Committee took place last week and the statement released told us that while the Fed thinks conditions are improving, they believe rates should stay as is for a "considerable time." In many ways this statement tells us that there is "more of the same" coming from the Fed, at least for now. Keith Stewart 773-529-7000

September 16, 2014 Real Estate Report - Employment Report Analysis

At first blush, it appeared that the jobs report was disappointing. The addition of 142,000 jobs in August was much less than the average of over two hundred thousand for the previous six months. Yet, the day of the report, the stock market reacted positively and interest rates did not fall as expected. What could have caused this "adverse" reaction? To us there are three possibilities. First, the same day as the jobs report, a cease fire was signed in Ukraine. As we have said previously, the world news is over-shadowing our domestic economic news this summer. If the truce holds, this is a positive indicator for the stock market but not necessarily positive for the continuation of lower interest rates. Secondly, the markets may be betting that the lower number of jobs added might be a one-time occurrence. The jobs numbers are often revised in future months and the markets are not likely to get upset over one report. Now, if we get two or three reports below an average of 150,000 jobs each month, this could be worrisome to the markets. Looking at other indicators such as first time claims for unemployment and the ADP private payroll report, there was no indication that the job creation machine slowed down last month. Finally, even if the production of jobs does slow down, the markets may not be too upset. Slower job growth might cause the Federal Reserve Board to keep short-term interest rates lower for a longer period of time and nothing would boost the stock market more than the prospect for a continuation of lower rates. This factor would apply if the production of new jobs does not slow any further from here. As we indicated last week, it is a good sign with regard to how far we have come in our recovery for the markets to now consider over 140,000 jobs created in a month a poor performance. Which of these factors is correct? There could be a bit of truth in each theory. You can bet on the fact that the Federal Reserve Board's Federal Open Market Committee will be considering these possibilities as they meet this week. Keith Stewart 773-529-7000

September 9, 2014 Real Estate Report - Well, Perhaps Not The Best of All Worlds

Last week we spoke with optimism about the fact that the economy is indeed recovering but interest rates are remaining lower than most had predicted for this year. We wondered whether we might actually have the best of both worlds -- at least for a short period of time. However, we have to recognize why rates are so low while the economy is edging its way back to normal. If rates are low because there is no evidence of inflation and the economy is not in danger of overheating, that is a good thing. As long as the economy keeps improving. On the other hand, if rates are down because of the violence which is occurring in several areas of the world, that is another matter. When the world is in crisis, it is not unusual for U.S. Treasuries to be a safe haven for investors. While the effects of low rates are still positive for our economy, we can't actually describe this as a good thing. And there is a connection between the economy and these events. For example, the economic sanctions levied against Russia are already affecting the European economy. During the financial crisis we saw how an under-performing economy in Europe can affect our economy's performance. With regard to our economic recovery, this past week's jobs report gave us evidence that the economy is not about to overheat and thus the Federal Reserve Board is not likely to move on increasing interest rates more quickly than originally anticipated. Wage growth has not been strong enough to contribute to concerns about inflation at this point in time. When you add the aforementioned concerns about world conflicts, it appears the Fed is more likely to keep rates low until sometime next year. On the other hand, the fact that 142,000 new jobs added in a month is now considered disappointing shows how far our economic recovery has progressed over the past year. Keith Stewart 773-529-7000