Some are enjoying the sale

While many are not too happy about the stock market retrenching and others who work in the energy industry are suffering through a retrenching, much of America is enjoying the sale going on right now. What is on sale? Gasoline and home loans. If these gas prices hold, we would expect a very busy summer vacation season and this should boost the economy. The American Automobile Association has indicated that the price of gas is now averaging over $1.00 per gallon less than the highs hit in 2015.

Lower than expected rates on home loans are fueling an increase in refinancing by homeowners. In mid-February, the share of applications for home loans which were refinances hit over 60% of the total market. Refinancing also puts more cash in consumers' pockets. With the spring real estate season about to start, it remains to be seen whether low rates will also boost home sales. We will add our own speculation.

We believe that if the economy continues to produce jobs near the same rate it did in 2015, and if rates stay low, this could be a banner year for real estate. The only issue holding back real estate sales is the lack of inventory. We expect builders to ramp up to meet the demand produced. The bottom line is that owning is cheaper than renting in most areas of the country and the sale on home loans has made homeownership even more affordable.

Mike Ervin
NMLS # 282715
W.J. Bradley Mortgage mike@mikeervin.com
www.mikeervin.com
P: (650) 451-7797
C: (650) 766-8500

Is The Stock Correction The Fed's Fault?

Stocks have had a rough start to the year and many analysts are blaming it on a slowing economy, especially in other parts of the world. We think that the Federal Reserve Board deserves some of the credit for the weakness in stocks. We are not saying the Fed was not justified in raising rates. However, it is likely that some investors involved in the equities market must have come to the realization that the party might be over when it comes to borrowing at such low short-term rates.

Did the Fed react too quickly with regard to moving rates up? It is hard to fathom this since they left rates so low for so long. And they warned us for a year that the rate increase was coming. Still, we do get the impression that the bad news around the world could have swayed the Fed to wait another few months. It was almost as if they had said that rates were going up "this year" so many times, they only had one more chance and that was the December meeting.

On the other hand, the last jobs report moved our unemployment rate to 4.9%, which is the lowest in eight years. The economy produced 150,000 jobs in January and still the markets were disappointed in the number. The news on job creation is evidence which supports the action by the Fed to move rates upward, even if ever so slightly. Though the stock market may be reacting to the world-wide economic slowdown, there is also more than just a small possibility that the specter of higher short-term rates also is factoring into the equation. 

Mike Ervin
NMLS # 282715
W.J. Bradley Mortgage mike@mikeervin.com
www.mikeervin.com
(650) 451-7797
(650) 766-8500

The Bright Side of Weak Stocks

We are not saying that the stock market is not going to recover quickly from the correction it has undergone during the past several weeks. Nor are we rooting for stocks to languish this year. However, we always find that when there is bad news, there is most likely counter-balancing news somewhere else. In the case of a weak stock market, we have seen some of these effects.

For one, interest rates are lower than anyone expected at the start of this year. As we pointed out previously, the weak stock market has made many observers predict that the Federal Reserve Board will be more reticent to raise rates again any time soon. And this is not just because of the stock market, but the factors which are causing stocks to be weak, such as oil prices and weakness overseas.

Another sector which could benefit from under-performing stocks would be the real estate sector. If investors can't get returns in equities, they are going to look for returns in other sectors. Institutional investors helped prop-up real estate by purchasing massive amounts of foreclosures during the aftermath of the recession. Individual investors have returned to real estate slowly but surely, by purchasing homes and investment properties. Continued malaise in the stock market could hasten this process. 


Mike Ervin
NMLS # 282715
W.J. Bradley Mortgage
mike@mikeervin.com
www.mikeervin.com
(650) 451-7797
(650) 766-8500

What a Difference One Month Makes

Let's go back four weeks. We are fresh off an increase in rates by the Federal Reserve Board and a Holiday Season. We are bracing ourselves for several rate increases in the coming year and a rise in rates on home loans. It took only one trading day for stocks to get our attention. Oil prices continued to move to levels we have not seen for close to a decade during our recession. World economic news made headlines as the stock market in China took a beating.

All of a sudden, rates are coming down as stocks suffer a correction, despite the Fed's activity. To explain all of this, we go back to two points we have made time and time again in our economic analysis. Number one, the Fed directly affects short-term rates, but does not control long-term rates directly. Certainly, there is an indirect effect on long-term rates resulting from the Fed's actions. Secondly, you can't predict the future, period. Even the Fed does not know what is going to happen.

We do know that if this news continues, the Fed's plan to continue to raise rates may be put on hold. There have been some bright spots. One bright spot has been job creation, though wage growth has been moderate. The other bright spot has been real estate. Soon we will see some news on both. The jobs report is released Friday, and shortly thereafter we will see if consumers are still purchasing homes while some of this turmoil is hitting the markets. It was a real interesting first month of the year, and we are just getting started.

Mike Ervin
NMLS # 282715
W.J. Bradley Mortgage
mike@mikeervin.com
www.mikeervin.com
(650) 451-7797
(650) 766-8500