Happy Thanksgiving

It is hard to believe that another year is just about to pass, but the end of the year holidays are already here. It has been an interesting year. We began with one of the harshest winters ever to hit the United States and it seems as if we are ending the year with the same weather pattern, as the "polar vortex" hit much of the nation in the middle of November. It is interesting that the cold weather hit the same week that there was an announcement of a climate deal between the U.S. and China. How can there be global warming when the weather is so extraordinarily cold? Well, we can't get into the scientific arguments regarding the debate, but we will note that one of the effects of global warming is supposed to be more extreme weather, including precipitation. And these extremes did affect our economy this year.

So, we will not be thankful for the colder weather and extreme storms, but we will be thankful that the economy has moved forward in spite of these obstacles. As a matter of fact, the last employment report was the best evidence that we have had that the economy is getting better. Why do we believe that? Well, the numbers were assessed as disappointing. We think that we have come a long way in order for a month in which the unemployment rate went down and we added over 200,000 jobs to be labeled disappointing. Just five years ago the economy was losing 200,000 or more jobs per month and the economy has not averaged 200,000 jobs growth per month since before the recession.

Sure, there are disappointing statistics associated with the report. There is still a low labor force participation rate and stagnant wage growth, which means that many of the jobs being created are lower paying. However, the solution to both of these problems is the creation of more jobs. When there is a shortage of labor, then wages will increase. And if 200,000 jobs added per month is our "low-point" for the next year, there will be plenty of jobs created which will help these numbers. And continued low interest rates and falling oil prices are two additional things to be thankful for with regard to the economy. Yes, things are not perfect, but when you compare where we are today to five years ago, we are in a much better position to move forward with regard to a healthy economy. If it doesn't snow all winter!

Hoping you and your family have a fabulous Thanksgiving.

Mike

Veterans Day

The election is over. The October employment report has been released. But these important events should not obscure the real importance of this week. Today is Veterans Day, the day we give homage to those who have served our country by defending our freedom throughout our history. We only need to look at what is happening in the Middle East to be reminded as to how important those who have served are to each and every one of us. Many don't realize how extensive the population of veterans is in this country. There are well over 20 million veterans and active military, comprising approximately 10% of the adult population of the United States.

For those in business, this makes veterans a very important demographic. For example, did you know that over 15% of the new home sales in the United States are being financed through the Department of Veterans Affairs VA Loan Program? Veterans also own around 10% of all U.S. businesses and have an income which is approximately $10,000 higher than the average American. So, we should not only thank veterans for serving, but also as veterans come back from overseas, helping them assimilate into society is not only the right thing to do, it makes great business sense.

Of course, we could not completely ignore the events of last week. As for the election, the results are important because we will no longer have a "divided" Congress; however, this does not mean that all gridlock will be removed. The employment report was also newsworthy, as this report followed our strongest month of job creation in quite some time. The numbers released Friday were slightly below forecast, but were still strong and included an upward revision of the job gains for the previous month. Plus, the unemployment rate moved down to 5.8% while the labor force participation rate increased slightly as well. All in all, a report that shows the jobs recovery continues to be on track.

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

Stocks, Bonds and Oil

It is interesting. For years we have gone through a very slow recovery from the recession. Yet the stock market has kept moving up each year for over five years with few interruptions. And now that we seem to be on the verge of gaining economic momentum, the stock market is acting like it needs to take a breather, a correction or something more severe. Why the glum news at a time we should be celebrating? There are plenty of theories. Perhaps the stock market may just need a breather which it has earned. Perhaps it is a "sell on the news" phenomenon. Other theories include the hypotheses that the markets are worried about events overseas or investors are afraid interest rates will rise soon because of the good economic news.


We have had plenty of bad spells in the past five years and the stock market seems to bounce back up each time. On the other hand, if it is a true correction, we have to say that the stock market has earned a breather after five strong years. What is also interesting is that oil prices and interest rates have fallen significantly in tandem with stocks. Lower oil prices are not typically the norm when we have a war going on in the Middle East. And rates should not be lower when the economy starts to accelerate. In this respect, lower rates could be another indication of global concerns.

The truth is that we rarely have markets moving where they are expected to move. Nor can we predict whether any of these numbers will hold. What we can tell you is that lower gasoline prices and lower interest rates are both good for the economy in the short run. Thus, if the economy is about to accelerate, a lower stock market may actually be adding fuel to this recovery. For now we will enjoy the good news regarding rates and oil prices while hoping that stocks are just experiencing a well-deserved rest.

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

If it is all about jobs, then...

For years we have gone through a tepid recovery from a very deep recession. And all along we have indicated that we don't recover from such an event if Americans are not working. Year after year we waited and waited. Well, the wait is over. The recovery in jobs is more than underway, it has arrived. The average of 220,000 jobs added each month thus far this year -- and the unemployment rate dropping below 6.0% -- is just what the doctor ordered in this regard. This is not to say that we are all the way back. Many of the jobs created have been lower paying jobs, which has held back the pace of personal income growth. In addition, the low labor participation rate tells us that if jobs keep getting created, we will have to absorb many returning to the labor market.

On the other hand, the progress we have made will cause a ripple effect throughout the economy. We are on pace to add almost 3 million jobs this year and this will increase consumer spending which will create more jobs. And some of this spending will make the real estate market stronger -- whether it is the purchase of new homes or major renovation projects for existing homes. Already we are seeing the strength in car sales and home improvement projects. But the one area we have not seen strength in this year is within the real estate sector.

More recently, we have seen renewed confidence by builders as new home sales have been ramping up. The bottom line is that we can't have a recovery without the creation of jobs and it is the creation of jobs that will bring us a complete real estate recovery. Yes, we still have a long way to go, but if we keep creating jobs at this rate, the road will become a lot shorter. From there, the only question won't be if interest rates will rise -- but when will they rise and how fast. Right now we have the best of both worlds: more hiring and very attractive interest rates.

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

Nowhere To Go From Here

That is right. We have nowhere to go from here -- and that fact represents good news. Each week the markets watch the first time claims for unemployment to get a reading on the employment numbers. However, that practice may very well have run its course with regard to its importance in the short-term. It is a matter of math. When claims dip below 300,000, as they have for several weeks this year, there is not much room for them to decrease further. A recent article from Bloomberg indicated that we are now at the level of claims not seen since 2006. And there are over five million more people who are participating in today's labor force as compared to 2006.

Indeed, during the three previous expansions, weekly jobless claims averaged around 275,000, which is just below this year's low. Again, we have millions more in the labor force now. However, don't think that we have reached full employment. We have plenty who have exhausted their benefits and represent the long-term unemployed. Others are under-employed, which might mean they are employed part-time but desire to be employed full time. Add this to those who are laid off even in a better economy and there is room for improvement in the employment numbers even if the weekly claims do not move down from here.

Friday's jobs numbers tell us that we are still headed in the right direction with regard to returning to a healthy labor market and ultimately a healthy economy. Not only did the unemployment rate fall below 6.0% for the first time in six years with the addition of almost 250,000 jobs, but there was a significant upward revision of the previous months' numbers, which means the pause in August was not as severe as we originally thought. When the Federal Reserve Board's Federal Open Market Committee meets later this month, these numbers will be on the table for analysis. Until then, it will be interesting to see if the other economic reports for September follow this stronger trend.

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

Turning the Corner

If 2014 was a one mile race, we would now be heading down the last lap. It has been an interesting year. We started with a long, cold and snowy winter. We then began to thaw out, and just as the sun started shining, the world seemed to erupt in crisis. But like many obstacles we have faced during the recovery, from natural disasters to fiscal calamities, we seem to move ahead slowly but surely. The big question is, will the last lap feature us gaining speed during the straightaway or will we be hampered by another road block?

If the year has been like a one mile race, then the recovery from the recession has been a marathon. Actually, 26.2 miles may not describe the trek we have gone through. But like the year, we are coming into the final lap, though this is a much longer lap. If we gain momentum during the last quarter of the year, we will be able to see, but not reach the finish line. This year we have marked a full five years of recovery, one of the longest recoveries from a recession in history, but also one of the weakest. Many predict two years or more before we can be considered fully recovered, but the last lap of 2014 could change that story.

The release of the employment report this Friday will hint of how much speed we will have garnered going into the last lap of 2014. The last report was mildly disappointing but we definitely have seen some momentum built up during the majority of 2014. If the numbers released on Friday include an upward revision of last month's numbers or September's numbers move back towards or over 200,000 jobs added, the one slow report will be seen as nothing more than a pebble in the road instead of a road block. Then we can rev things up and hopefully we don't have a huge snowstorm in November. Can we get a little help, weatherman?

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

The Fed Transition

The Federal Reserve Board is going through quite a transition. Actually, more than one. The first transition is one of secrecy to transparency. In the past we had to guess at what the Fed was thinking. If they were planning a move, they never wanted to leak the news ahead of time because of what the "anticipation" might do to the markets. Over the past several years, they have transitioned to a more open culture, telegraphing potential moves well ahead of time in order to take that surprise factor out of the equation.

The second transition is removing fiscal stimulus from the equation. The financial crisis and ensuing recession was so strong that the level of fiscal stimulus applied was unprecedented -- from record low interest rates to the purchase of hundreds of billions of dollars of Treasuries and mortgages. The Fed has continued to remove the purchase of Treasuries from the equation and they also face the second decision -- when to raise short-term interest rates. Because of the new era of transparency, Chairwoman Janet Yellen has been talking about dates from the time she assumed the seat.

At first, talk of raising rates caused the markets to react as long-term interest rates rose. But as time went on, this effect has diminished. We are not sure if that is because of economic concerns, world-wide conflicts which have flared up or because the markets just got used to the message. The latest meeting of the Fed's Federal Open Market Committee took place last week and the statement released told us that while the Fed thinks conditions are improving, they believe rates should stay as is for a "considerable time." In many ways this statement tells us that there is "more of the same" coming from the Fed, at least for now.

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