We Have Hit Bottom........

It is not often that I go out on a limb and make a prediction about the future. That is because if I could predict the future, I would be on a 200 foot yacht in the Greek Islands. However, sometimes I just can't resist. What bottom am I predicting? The rate of home ownership in America. It has been falling for nearly a decade and in the fourth quarter of 2014, it hit the lowest level in over two decades at 63.9 percent, according to the National Association of Realtors.

The peak for the home ownership rate was just under 70% during the real estate boom. Why is it going up from here? There is a few reasons. For one, it is getting easier to own a home because credit standards are lower. Secondly, the cost of renting keeps going up and it just makes more economic sense to own. When renting is more expensive than owning, before the benefits of tax deductions and the forced savings of principal reduction are taken into account, then the economic message can't be ignored.

The most important reason? The time is right. More jobs are being created and that means the rate of household formation is increasing. A report recently issued by the Lusk Center For Real Estate at the University of Southern California indicates that we are now at pre-recessions levels of household formulations. That means that the Millennials are moving out and they will need places to live. The first quarter of 2015 statistics have not been released yet, but we think I are at or near the bottom and the rate of ownership will rise from here unless there is a major intervening economic variable. 


Mike Ervin
Branch Manager/Mortgage Banker
NMLS: 282715
O: 650.735.5261
C: 650.766.8500

The Jobs Report Surprises Again....

Daylight Savings Time is the official start of the spring real estate selling season. With the weather the mid and east coast had during February, I am sure this early rite of spring caught many by surprise. But in my experience I know that things can heat up quickly. The markets will be monitoring how busy traffic is at open houses, builder sites and more when people are able to go out and drive again in certain areas of the country.

Of course, the markets are also monitoring the jobs data closely as well. The jobs data has been so strong lately that analysts now seem to be expecting around 250,000 jobs to be added each month. In February, the numbers did not disappoint these prognosticators, as the economy added just under 300,000 jobs for the month. The unemployment rate slipped to 5.5% from 5.7%, which was also better news than forecasted.

There were some aspects of the report which were considered not as strong. For one, the rise in hourly earnings was disappointing. This is good news with a meeting of the Federal Reserve Board coming up next week. The Fed will be considering the issue of raising rates and the lack of wage inflation takes some pressure off. Of course, this is bad news for workers. Also on the weaker side was the drop in the labor force participation rate. Some are theorizing that the bad weather in February may have discouraged some from coming back into the labor force. Bottom line, the economy continues to improve. Now how about that weather west coast.....

Mike Ervin
Branch Manager/Mortgage Banker
NMLS: 282715
O: 650.735.5261
C: 650.766.8500

Is it Spring & Jobs Report Time Already?

It sure doesn't feel like spring on the east coast. However, our calendar tells us that it is March and this week we have two important events -- Daylight Saving Time starts this week, which means we must turn our clocks forward and we have another jobs report being released. It seems like we just had a jobs report to comment on, but we must remember that February is a short month.

The jobs data has been so strong lately, our guess is that projections are starting to creep up. There was a time not long ago in which 200,000 jobs added was considered a fantastic month. Now 200,000 may be considered a disappointment. If we continue to add jobs at the rate of 250,000 per month, it is possible that the Federal Reserve Board will raise short term rates more quickly than anticipated.

Evidence the fact that rates moved up significantly during the week of the last jobs report. The move was not enough to shake the markets nor enough to deter consumers from purchasing homes. However, that does not mean another strong report could not move rates up another notch. The real estate data released in the past week was not especially strong with existing sales slightly lower than expectations and new home sales slightly higher than expectations. Even though the data was not strong, the numbers continued to be improved on a year-over-year basis -- thus the market is moving in the right direction and the very strong pending home sales numbers released on Friday confirms that assessment.  

Mike Ervin
Branch Manager/Mortgage Banker
NMLS: 282715
O: 650.735.5261
C: 650.766.8500

The Surging Dollar

In the past few months, we have focused upon many factors affecting the economy. These have included low oil prices and interest rates. The same international economic and political factors which have pushed rates and energy prices lower and contributed to volatility in the stock market, also have caused the U.S. Dollar to surge to levels not seen for years.

There are many positives associated with a stronger dollar. For one, our dollar is strong because our economy right now is stronger than many other countries, especially Europe. In addition, a stronger dollar makes imports and travel cheaper, which lowers the threat of inflation and helps keep our interests rates low. However, there is a negative side of a strong dollar. Because our exports become more expensive to foreign nations, it can slow our economy and cost us jobs.

Like everything in life, each economic factor creates balances. If our economy is stronger than others, the stronger dollar can bring it down a notch. Here is the good news. With low oil prices and interest rates, the consumer has a chance to be an economic star in 2015. The creation of more jobs and low rates could very well turn into great news for the real estate market in 2015 and thus offset the negative effects of a stronger dollar. Meanwhile, it is a good time to book a hotel room in Europe and many other places.  

Mike Ervin
Branch Manager/Mortgage Banker
NMLS: 282715
O: 650.735.5261
C: 650.766.8500

Have We Hit Bottom?

Usually, when we hear that someone or something has "hit bottom" -- that is a good thing, because the only direction that person or thing can go from there is up. On the other hand, if we are talking about oil prices and interest rates, hitting a bottom might not be considered a good thing. For example, if you were looking for gas prices to hit $2.50 per gallon, they are not going near that price if we have indeed already hit bottom.

Indeed, there is some evidence that oil prices bottomed around $45 per barrel. We are not surprised by the fact that oil prices rebounded to the $50 per barrel range because they had fallen so far and so fast. Often markets overshoot the fundamentals and come back to be in balance. Are oil prices going back to $100 per barrel? We have no idea because we can't predict the future. However, most likely the price will settle somewhere in between $45 and $100 without some major intervening economic or political variable.

Interest rates too have been falling for the past few months. Not as precipitously as oil, but one must remember that rates were already very low. The fact that rates went back to the record low levels hit two years ago, was quite extraordinary and certainly not predicted. Like oil, we are not surprised that rates have rebounded somewhat. If a few weeks ago was the bottom, there will likely be a rush of those who waited too long. When homeowners and buyers realize that, we expect there to be lines forming to refinance or purchase a home. The question is -- is there still time to get in front of the line?


Mike Ervin
Branch Manager/Mortgage Banker
NMLS: 282715
O: 650.735.5261
C: 650.766.8500

The Employment Report is Released

For the first part of the year, the focus has been international news, rather than domestic economic reports. Not that we have not had our share of news, including the first meeting of the year for the Federal Reserve Board's Federal Open Market Committee (FOMC). The statement from the committee indicated some of the same emphasis on international news.

This news has included increased economic stimulus in Europe where the economies continue to struggle. The stronger dollar and low price of oil are also affecting overseas economies -- as well as our own economy. It is unlikely that our interest rates would not be so low without the world-wide economies continuing to languish. The question is, will our economy continue to thrive through all of this world-wide economic and political turmoil?

Thus, January's reading of the jobs situation released on Friday was all-important in this regard. What did the data show? It showed that our economy is continuing to strengthen as the world slows down. More jobs were created than expected, the previous months were revised even higher than originally reported and hourly earnings showed a healthy jump. Even the higher unemployment rate was seen as a positive as this was due to more job seekers entering the market. Any increase in the labor participation rate is viewed as a sign of an increasingly confident consumer.

Mike Ervin
Branch Manager/Mortgage Banker
NMLS: 282715
O: 650.735.5261
C: 650.766.8500

First Data of 2015

This week we will see the first release of economic performance in 2015. Not only is it the first data release, but also the most important release of all. It is the jobs report for January. There will be a series of releases on the employment situation this week, but the most significant number is Friday's jobs report. Why do jobs represent the most important data?

The creation of jobs fuels the economy. People with jobs spend more money. The money they spend creates other jobs. For example, if they purchase a car, it creates manufacturing jobs. If they purchase a new home, it creates constructions jobs. That does not even count jobs for real estate agents, loan officers, appliance manufacturers and several other sectors connected with the housing industry. As a matter of fact, the real estate industry is the best example of the effects of job creation.

The National Association of Home Builders has stated that the construction of 1,000 homes creates approximately 3,000 jobs. When people buy homes, it creates jobs and then these people can also purchase homes. Thus, if you want to see how real estate will do this year, watch the jobs report. Last year was the best year for job creation in over a decade. Let's hope the good news continues in this regard.

Mike Ervin
Branch Manager/Mortgage Banker
NMLS: 282715
O: 650.735.5261
C: 650.766.8500