Category Archives: Real Estate News

The Jobs Machine Hums

A View from the Beach

ECONOMIC COMMENTARY
March 13, 2018 – 

 

The wild year has continued with regard to volatility in the markets, political headlines and, sadly, national tragedies. Through it all, we have seen three patterns emerge. First, the volatility has been focused mostly in the stock and bond markets. Stock gains were some of the strongest in memory in January and the losses in February came close to wiping out those gains. The bond market has been weak, and this has led to higher long-term interest rates.

Secondly, we have seen an economy which has continued to strengthen, but not overheat. There is no longer talk of the lack of inflation being a threat to growth. But, on the other hand, inflation has not been a major issue either. Lastly, up until now, jobs growth has been rather steady. Other than a hiccup late last year due to the devastating storms we had during the hurricane season, our jobs growth has been holding at a strong enough level to keep unemployment low.

February’s job report saw this trend grow stronger with 313,000 jobs added. The unemployment rate remained at 4.1%. With regard to wages, the story there showed no acceleration of wage growth. Overall this report was viewed as good news. For those waiting and wondering what the Federal Reserve Board’s Open Market Committee will do with interest rates next week when they meet, the consensus is that this report will not change the odds much that the Fed will increase rates. Nothing is a certainty, but if you listened to the Congressional testimony of the new Chairman, Jerome Powell, a rate hike this month is definitely a strong possibility.

 WEEKLY INTEREST RATE OVERVIEW

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The Fed Will Be Watching

A View from the Beach

ECONOMIC COMMENTARY
March 6, 2018 –

 

The minutes of the Federal Reserve’s January meeting were released the week before last. These minutes indicated that the Fed is comfortable that an expansion with “substantial underlying economic momentum” could sustain additional increases in interest rates this year. This statement was of no surprise to the markets, as rates have been increasing for several weeks now in anticipation of action by the Fed due to a strong economy.

With the next meeting of the Fed just two weeks away, obviously this statement heightens the possibility of a rate increase announcement at the March meeting. A rate increase at this meeting is not a certainty, but it definitely could happen. What could keep the Fed from holding off at this late juncture? The volatility of the stock market could be a factor, especially if additional drops become precipitous. Additionally, late economic data showing the economy is not as “hot” as expected would be taken into consideration.

The most important data is to be released this week. The jobs report is the first reading of data for February and is watched closely by the Fed. The Fed will be watching both the amount of jobs created, but also will be looking for any signs of stronger wage inflation. We may actually need a disappointing jobs report with no acceleration of inflation to convince the Central Bank from holding off at this point.

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Assessing Returns

A View from the Beach

ECONOMIC COMMENTARY
February 27, 2018 – 

There are many questions which have arisen because of the movements in the stock market and interest rates. For example, how high will interest rates need to go in order for investors to start thinking that they can achieve better returns than the stock market? That seems far-fetched because the stock market has done so well since the great recession, with the S&P gaining an average of over 10% per year. But, keep in mind that these gains have included a rebound from sharp losses during the recession and were fueled by record low interest rates.

And where would one go to achieve these better returns? One possible place would be real estate. One reason rates are rising is because recently, inflation has become a factor. Well, inflation has affected rents being paid and home prices for some time. If someone purchased a house five years ago, chances are they have done very well — whether they are living in the home or it is an investment property.

As we have said, this year’s wild ride has made it even tougher than normal to make predictions. It is possible that these gyrations could start affecting economic growth, despite the stimulus of the tax legislation. Investor and consumer confidence are really important factors — and neither likes to witness the uncertainty that volatility brings. The best news would be for the markets, rates and inflation all to calm down a bit as spring approaches. Next week’s jobs report could go a long way to convince the masses that everything is on-track and not overheating — if we don’t get a surprise on the low or high side.

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The Wild Ride

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ECONOMIC COMMENTARY
February 20, 2018 –

 

Several weeks ago, we spoke about the negative effects of economic growth. The two factors we cited were higher interest rates and higher oil prices. Now we are starting to see the markets react to this new reality. Many are blaming rising interest rates for causing what we can now call a stock market correction. A correction which we have not seen for some time. Why would higher rates cause stocks to falter? Abnormally low rates have propped up the markets for years. Why keep your money in the bank earning 1.0% interest when you can earn 10% or more in the stock market? That is an over-simplification, but certainly higher rates are taking some of this extra stimulus out of the equation.

Not that rising rates are the only explanation with regard to the trepidation in stocks. As we also explained several weeks ago, the tax plan was great news for stocks because it immediately made companies more profitable by lowering their tax rates significantly. Stocks have been rallying for nine years, comprising the second longest bull market in history, but the rally intensified in anticipation of the tax plan. We surmised that all the good tax news was already built into stocks, but the rally continued anyway — until rates started rising.

The question now is whether this is just a healthy and long-overdue correction which may reverse quickly, or is it the beginning of the end for the bull run? As always, we will stay away from predictions. Rates could ease back down or stabilize — and the market could climb back. Right now, the economy is healthy and rates have not risen far enough to cause the economy to pause. Actually, if the growth eased a bit, this could cause the Federal Reserve Board to be less concerned with inflationary pressures and perhaps permit them to take their foot off the pedal. For now, we have a pretty wild ride going on.

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Double Feature

A View from the Beach

ECONOMIC COMMENTARY
January 30, 2018 –

 

As we have mentioned previously, it has already been a busy year with major storms, wildfires that turned into mudslides, a new tax plan and the in-fighting in Washington seemingly getting worse. And that is just the first month of the year. We end the first month and start the second month with another busy week, at least on the economic front. This week we have the first meeting of the year for the Federal Reserve Board and also the first reading on jobs which contains 2018 data.

Thus far this year it seems that the economy continues to move forward, even without the anticipated effects of the tax plan. Of course, the anticipation itself has fueled much optimism which can be seen in record stock market closes. The performance of the economy is all about optimism. Since the Fed just raised their benchmark rates in mid-December, most analysts are not expecting another increase so soon. However, even if they do not raise short-term rates at this meeting, they will be discussing how much and how quickly they will be raising rates this year.

How much and how fast will depend upon the strength of the economy. And major evidence of this strength will be released a few days after they meet in the form of the January employment report. December’s job gains were a bit under forecast, and thus we will be looking at not only January’s numbers, but revisions to the previous months’ data. A really strong report could move the Fed to raise rates at their next meeting in March. Even if they do not, one thing is certain — unless something happens to derail the economy, their only move is up this year.

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The Downside is the Upside

A View from the Beach

ECONOMIC COMMENTARY
January 23, 2018 –

 

The stock market is setting records. We have a new tax plan which lowers taxes significantly for companies and moderately for individuals. We just had a decent retail holiday season with higher home sales closing out the year. In other words–everything is looking up for the economy. Most economists are cautiously optimistic that the good times will continue through at least 2018.

Unfortunately, with the economy gaining momentum, some of the movements upwards are actually turning out to be downers. More specifically, we are referring to interest rates and oil prices. The price of oil is now over $60 per barrel after oscillating above and below the $50 level for more than a year. Certainly, higher oil prices is the price we have to pay for having a better economy that increases oil demand. However, oil prices could still fall if the news on the supply side becomes more optimistic. There have been plenty of forecasts showing at least the potential of this occurring.

Not so with interest rates. You can’t pump money out of the ground. The better economy has caused the Federal Reserve Board to raise short-term interest rates five times over the past two years. Long-term rates have also been trending upward as the economy has improved. Most are not expecting another increase by the Fed when they meet at the end of this month. But that does not mean that long-term rates won’t keep rising if we get the news that the economy is still rolling. As a matter of fact, the threat of higher interest rates is one reason that real estate is so hot. Most want to purchase before rates go up further. Will rates keep moving up? That depends upon whether the economy stays strong in 2018.

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Mid-January Report

A View from the Beach

ECONOMIC COMMENTARY
January 16, 2018 – 

 

Believe it or not, we are halfway through the first month of the year. While a few weeks passing may not seem like much, these are very exciting times. Americans are reacting to a new tax plan, stocks have already broken records and we have had the first natural disaster of the year — a bomb-cyclone. A few weeks ago, most of us had never heard of a bomb-cyclone. And even though we did not know, since we are publishing from the east coast, we certainly felt the cold. When it snows in Florida, it is definitely a weather event.

The question is–what have we learned since the beginning of the year? We have learned that the stock market’s surge in anticipation of the adoption of the tax plan is not over now that the plan has come to fruition. There was some concern that all the gains were built into the pricing of stocks, but the New Year has brought more good news in this regard. Of course, this does not mean that the gains will last all year — but it was a good start.

In addition, stocks are not the only items that are going up in price. Oil prices have topped $60 per barrel for the first time since 2015. Interest rates have also risen, though the move has been more pronounced with regard to shorter-term rates. Again, this does not mean that oil prices and rates are moving up all year. On the other hand, if the economy does continue to expand and this expansion accelerates because of lower tax rates, it makes sense that rates and commodity prices will move up. Yes, it is hard to get a feel for a year based upon two weeks of activity, but we already have some interesting news to reflect upon this year.

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