Consumer Advice

Brexit Causes Rates to Become Even More Attractive

78c2e-dropping_ratesThe United Kingdom has voted to leave the European Union.  This has caused an uproar in the markets, including the good news regarding a dip in interest rates near lows seen only one time in history.   Stocks, the dollar and even oil prices were affected by this news.  Lower interest rates are the silver lining.

While volatility in the markets has increased, the world will soon realize that it will take up to two years or longer for the exit to take effect and there will be a plethora of negotiations which will take place along the way. For example, the UK will now need individual trade agreements – lots of them.

There are other risks as well. What if Scotland and Northern Ireland vote to exit the UK because they were in the “Bremain” camp? That could mean even more turmoil.

The bottom line is that we have a lot of volatility and this means that the recent drop in rates could last a few hours or a few days and then pop back up. This means that those who are thinking about purchasing real estate or refinancing should act quickly as this is a sale on money that could end at any time.  Contact me directly for the quickest response.

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Real Estate News

Jobs: Could Higher Rates Be Good?

October 6, 2015
ECONOMIC COMMENTARY
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.

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Real Estate News

 Listening to the Fed’s Words

September 22, 2015
ECONOMIC COMMENTARY
Forget about what the Federal Reserve Board did not do for a minute. Let’s talk about what they said. With the Fed, it is usually more likely that their words will be more important than their actions, or lack of action. This has been a very turbulent end of the summer for the markets. Above all, the Fed is interested in restoring calm and especially making sure that their actions do not add to the instability of the markets. And we certainly have had some unstable markets during the past several weeks.

This is exactly why we were expecting “calming words” from the Fed when they made their announcement. Did we get these words? Absolutely. The Fed said that “recent global economic and financial developments may restrain economic activity somewhat.” Two things are important about this statement. First, it is softened by using the word “somewhat,” meaning the Fed does not see a risk of a world-wide economic meltdown. Secondly, the Fed used the words “international or global” more than once. The international issues broaden the scope of the Fed’s focus from just looking at our jobs or inflation numbers.

Bottom line is that the Fed did not raise rates, though they did leave that option open for their last two meetings of the year in October and December. That is good news for the markets and the consumer. The stock market has already been under pressure lately and it did not need the extra pressure of a rate hike. And rates on home loans are likely to stay low in light of the Fed’s decision. We can’t think of better news for the consumer right now.

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Consumer Advice, Realtor Advice

Federal Reserve Meeting – Are You and Your Clients Ready?

FEderal REserve StructureThe Federal Reserve’s next meeting is today and tomorrow, Wednesday September 16th and Thursday the 17th.  This event is one of the most anticipated Fed meetings in a generation.  Global traders have debated the timing of the first rate hike since the beginning of 2015.  The voting members of the Fed are as divided as economists.  The debate has played out all year and the uncertainty has caused wild price swings in all asset classes (stocks, bonds, commodities and currencies).  At times the wild price swings have hit a hyperbolic state with movements in stocks of greater that 1000 points.

Why the drama?  The last time the Fed hiked rates was almost a decade ago.  Put another way, the kids that recently started their senior year at high school were in second grade the last time rates were hiked.  The Fed dropped rates to zero and embarked on a series of other accommodative measures to kick-start the economy in response to the Great Recession of 2008.

The Fed has two mandates from Congress, full employment and price stability. Continue reading

Real Estate News

How About Some Perspective?

September 15, 2015
ECONOMIC COMMENTARY
Last week we talked about how times can change from week-to-week. With regards to the somewhat “disappointing” jobs report released recently, we have to reach back almost a decade to understand how our perspective changes over time. The economy lost approximately 8.7 million jobs during the Great Recession of 2007 to 2009. Since that time, the economy has added over 11 million jobs. The unemployment rate peaked at 10.0% in October of 2009. It currently stands at 5.1%, near the 4.5% bottom it hit before the recession took place.

Keep in mind that this does not mean we have recovered completely. During this time the country has added tens of millions to our population and therefore we have not recovered all jobs lost. Why is this perspective important? Because the Federal Reserve Board will be considering long term trends when they make a decision regarding raising rates this week. Yes, the latest report is important, but not as important as where we are headed. And therein lies the problem. The Fed can’t predict where we are headed either. For that the Fed would need a crystal ball and they don’t have one of those.

Certainly, the gyrations of the stock market will be considered by the Fed. And not only our stock market, but markets all over the world and especially in China. Is our market correction due to the possibility of the Fed raising rates or the fear of an economic slowdown spreading to our shores from overseas? One trend should be noted: short-term rates have risen during the past several weeks and this tells us that the markets are expecting some action from the Fed. Though short-term rates are not as “visible” to the consumer as longer-term rates that determine the value of fixed rate home loans, short-term rates do determine adjustments for those having variable rate home loans and this trend bears watching.

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Real Estate News

My How Times Change

September 8, 2015
ECONOMIC COMMENTARY
You may be thinking that we are talking about how the world has changed over the years. For example, who would have thought that a conversation with our children would most likely occur through texting on a machine that many of us did not even grow up with years ago? Here we are talking about how things change from week-to-week. During the past few weeks we have been illustrating factors before and against a rate increase orchestrated by the Federal Reserve Board, whose “Open Market Committee” meets next week.

On the plus side we had a strengthening economy and the creation of jobs. On the negative side we had a correcting stock market, a stronger dollar, a slowing economy overseas and plunging oil prices. In just a couple of days, the stock market rebounded significantly, we had a significant upward revision in the estimate for our economic growth in the second quarter and oil prices rebounded sharply as well. In a matter of a few days, we went from not at all expecting a rate increase to thinking that a rate increase could happen. Just to make things interesting, a few days later, stocks and oil prices reversed again. If you are confused, think how the Fed must feel considering this decision.

And then came the jobs report. What did the jobs report tell us? Even though the addition of 173,000 jobs was less than expected, the unemployment rate dropped to 5.1%, the previous month number of jobs added was revised upward and wages grew a bit more than predicted. Overall, this report is a positive one for the economy and, therefore, increases the chance of a rate increase next week. Most analysts are putting the chances of an increase at 50-50 right now. Though, one thing we can tell you is that the Fed does not like major uncertainty. And there is plenty of uncertainty out there right now. Too much uncertainty may be the overriding factor determining the results of this decision.

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Real Estate News

The Correction Adds Another Variable

September 1, 2015
ECONOMIC COMMENTARY
Last week we spoke about the factors the Federal Reserve Board must balance before making a decision about rates. This week we can add one more factor, a stock market correction. This year the Dow peaked at 18,286 in May. When we wrote our column regarding the fact that the markets were due for a correction on July 14, we were still around the 18,000 level. On August 25, the Dow closed at 15,666. That is a drop of well over ten percent, the standard of what is considered a correction.

What is causing the “adjustment”? There are plenty of possible factors, including the more severe drops in international markets, especially China. Other possible factors would be the devaluation of overseas currencies or the specter of coming rate increases. Or it could be, as we mentioned in the July 14 article, that we were just due for a correction. Markets can’t move straight up forever and this run without a correction has been way longer than average.

We also don’t know that the stock market will not bounce right back, which it started to in the middle of last week. But if it doesn’t, we expect a nervous stock market also to weigh on the Fed when they meet in a few weeks and consider a rate hike. The markets do not like uncertainty and there is plenty of uncertainty out there. In the meantime, the stock market’s correction has added the benefit of helping keep rates low for a while longer, giving more time for Americans to enjoy this added benefit. But don’t get too comfortable, because this week’s jobs report is about to add another factor into the mix.

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