Happy Thanksgiving

It is all about turkey and giving thanks this week. As much as we have struggled to rebound from the financial crisis and recession during the past five years, we have plenty to be thankful for. For one thing, our rebound did happen -- albeit very slowly. Just a few years ago, economic prognosticators were predicting that real estate would not rebound for at least a decade. It has been five years and we are already at least one year into a rebound. Again, we are not all the way back but at this point you can't deny the progress we have made. No longer is the number of homes going into foreclosure leading the headlines. Now the drop in the number of foreclosures highlight the statistics.

The same can be said for the job market. We lost over eight million jobs during the recession and it has taken us this long to come up close to making up those eight million jobs, which does not account for the population growth of the past five years. Yet, the unemployment rate has dropped from 10.0% to close to 7.0% -- a drop of almost 30% in four years. According to the Federal Reserve Board, the unemployment rate is poised to drop further in the coming months. We took a very large economic punch in the gut five years ago and we have now regained our footing and we are now punching our way back. That is called resiliency. And when others face tragedies such as the Typhoon that hit the Philippines a few weeks ago, we step up and help others in need. Yes, the past few years have been a struggle for millions, but we also have a lot to be thankful for -- not the least of which is the turkey we will have on our plates tomorrow.

Mike Ervin

NMLS # 252715

C: 650.766.8500

P: 650.735.5261

mike@mikeervin.com

Maybe It's Not a Fluke

Maybe It's Not a Fluke

Two weeks ago we published a column entitled "Words of Optimism." Last week a surprisingly strong employment report was released. Was this a coincidence or was it an accurate prognostication? We do know that the jobs data can be tricky. What looks strong one month can be reversed the next month as the new month's data is always accompanied by revisions of previous numbers. Thus, we would need to see two or three months of strong jobs reports before we declare a turnaround and a great prediction (or a lucky guess). On the other hand, the words of optimism were based in fact and those facts included the important numbers regarding increased household formulation. As a matter of fact, household formulation and jobs data are clearly linked.

As more jobs are created, more households are created as children move out on their own. This demand for housing -- both rental and purchase -- creates more jobs. This relationship created a vicious cycle during the recession. Today it could influence the start of a virtuous cycle in which the economy is buoyed by both factors working together. Again, our thoughts are not just the result of rampant speculation. A recent report by the Federal Reserve Board indicated that the employment rate was set to fall in the coming months -- "Across the board, these indicators show the pace of the labor market recovery has increased compared with a year ago," wrote Mary Daly, the San Francisco Fed's deputy research director, and colleagues Bart Hobijn and Benjamin Bradshaw. "We take this as evidence that the recovery in the labor market is robust, broad-based, and likely to continue, if not accelerate, over the coming months." (Reuters). So, perhaps the surprising jobs report was not a fluke. But we still need to see a few more months of data to really determine if this is the case.

Mike Ervin
Mortgage Loan Officer
NMLS # 252715
C: 650.766.8500
P: 650.735.5261
mike@mikeervin.com

Employment Report & Turkey Day

A busy week included both an Election Day and a release on the employment numbers for October, as well as numerous additional points of data. The employment report was surprising to say the least with the markets assuming that the government shutdown would have held a lid on hiring during the month while government workers were furloughed. Not only was the addition of over 200,000 jobs more than expected last month, but the previous months data was adjusted higher as well. Economic data measuring activity in the manufacturing and service sectors also exceeded expectations. This strong data is important with regard to influencing measures of consumer sentiment which had turned lower during the month as the shutdown drama unfolded. From here, stronger consumer sentiment is critical. Why? Because it is shopping season.

November is the start of the Holiday Season and market analysts will be at the malls more frequently. Perhaps they will be doing some shopping, but more than likely they will be measuring early data regarding how busy the shopping season will be. Each year, store traffic becomes less important because so many are shopping on line. We are approaching both Black Friday and Cyber Monday in a few weeks. Though the word is that many stores will be open on Thanksgiving Day and perhaps Black Friday will become Black Thanksgiving Weekend. Certainly on-line shopping is open on Turkey Day so why not the stores? Well, those who have to work Thanksgiving Day certainly will not be thrilled -- unless they don't like turkey and football.

Let the games begin!

Mike Ervin

NMLS # 252715

C: 650.766.8500

P: 650.735.5261

mike@mikeervin.com

Words of Optimism

Like the past few years, economic growth has not been strong in 2013. Yet, for some reason this year the country seems to have more optimism regarding prospects for the future. The obvious question is--why the optimism? To us it all boils down to two words --- household formation. The creation of households bottomed during the most recent recession--down to below 400,000 per year from an average of 1.2 million per year over the past 65 years. This lower average was a significant drag on the economy. In the past two years, annual household growth has soared back to 1.1 million in 2011 and 2.4 million in 2012. Kids are moving out of their parents' houses in droves. Why is this increase in household formation so important? It is more than just a direct relationship between formation and the need to build homes.

Even if the kids move out and rent an apartment, this increases demand for multi-family housing and we have seen this market recover significantly. Some will purchase or rent single family homes. And starting a household requires the purchase of furniture, cars, insurance and more. If you look at the projections for growth in the next few years, it is no wonder that single family home starts are expected to double from the depths of the recession by 2015 (see the article in the news section). It is also no wonder that the job growth is predicted to increase substantially in the next six months according to a Federal Reserve Bank of San Francisco report. We may be in a pause now because of the effects of the government shutdown and the accompanying uncertainty; however, growth spurred by household formation is inevitable. There can always be intervening variables, but the numbers are there for a solid recovery moving forward from here.

Mike Ervin

NMLS # 252715

C: 650.766.8500

P: 650.735.5261

E: mike@mikeervin.com