Rates Are Still Low

Sometimes we lose our perspective. While rates on home loans have been increasing for the past few weeks, if you read the headlines, it seems like rates are really high right now. They are not. According to the Freddie Mac survey of home loans, the 30-year fixed loan averaged over 5.0% every year from 1975 until 2010, a period of 35 years. That is a generation in which rates have averaged over 7.0% in the long haul.

It is only since the financial crisis hit that rates averaged below 5.0% and for the past five years, the average has been a little over 4.0%. Yes, there were a few periods where rates dropped below 4.0%, including early this year. However, when you look at the difference between 7.0% and 4.0%, rates are over 40% below where they have been historically. This is why renting is more expensive than owning right now in most areas of the country.

There is another message here that we have been delivering for a while. These low rates are not expected to last forever. Every time rates increase as they have in the past few weeks, we ask ourselves--is this the end of the super low rates? We hope not. However, we keep cautioning our readers that rates are great right now and if you are thinking about purchasing a home, refinancing or even purchasing a car, now is an excellent time. You never know when this sale on money will end.

Mike Ervin
Branch Manager/Mortgage Banker
NMLS: 282715
O: 650.451-7797
C: 650.766.8500
mike@mikeervin.com

Lifting Others Up

Almost a decade ago the first salvos of the subprime mortgage crisis were being felt. We know now that what started in our real estate sector spread not only to our entire economy, but to great swaths of the world as well. It was as if we pulled the world into recession. As the world's largest economy, it is not surprising that as we sunk, we took much of the world with us.

Now that our economy is recovering, the world is still languishing in many areas. The question is -- can we now lift the world out of recession? We think that it is logical that this could happen. However, there is one factor which must be in place -- our real estate market must be clearly recovered. The real estate markets led us into recession, and now they must lead us to prosperity.

This is why the monthly real estate data being released is so important. Last week we had existing and new home sales data released and the results were mixed, but the more important existing home sales figure was positive. This represents a decent start to the spring selling season. We are not saying that the jobs report next week will not be watched closely. The jobs numbers are very, very important. But employment will not keep improving without help from the real estate sector. The Federal Reserve Board is meeting as we release this newsletter and you can be sure the real estate sector will be on their mind as they prognosticate about the next employment report to be released next week.

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

So, How Was It?

With all the buildup we gave the March unemployment report, the next question is...how was it? Was it really as important a release as we have described? Generally, the jobs data is very important, but this report had the potential for real impact coming on the heels of six months of strong jobs data and being released two weeks after the Federal Reserve Board's Open Market Committee considered how quickly they should raise short-term interest rates.

The result was good news with regard to the upcoming rise in interest rates in the form of bad news from the labor sector. The increase of 126,000 jobs was just about half of what was predicted by economist ahead of time. In addition, the previous two months of data were revised down by almost 70,000 jobs. The unemployment rate remained steady at 5.5%. In response to the weak report, market analysts seem to be pointing their fingers at the bad weather we experienced in February, as well as layoffs in the energy sector, by way of explanation.

We will note that one soft month does not indicate a trend, especially during a rough winter month and with data that is often revised the following month. But the results will give the Fed some hesitation. What could save us from an imminent rate hike even if this report was a one month anomaly? A strong dollar and low oil prices both lower the threat of inflation. In addition, wage inflation, which remains muted for now, is as important as the number of jobs we create. The key is inflation, or more precisely, the lack of it. 

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

A Crucial Employment Report

Every month the employment report is very, very important. The creation of jobs not only tells us how the economy is performing, the report also tells us how the economy will be performing in the future. When we create a significant number of jobs, we know that these jobs will create more jobs because those who have become employed will spend more money on a variety of goods.

This week, we feel that the March employment report is even more important than usual. Why? For one, after the creation of almost 300,000 jobs per month over the past six months, we know that the Federal Reserve Board is getting closer to raising short-term interest rates. Any number close to 300,000 this month may move the Fed to a tipping point. In their most recent meeting the Fed removed the word patience from their guidance but at the same time, indicated that they will not be "impatient."

Secondly, we are looking at another number besides the number of jobs created. We are looking at those who have removed themselves from the labor force as a result of the recession. If some of these folks start coming back into the labor force, the unemployment rate could increase or at least stay the same even with a significant number of jobs created. If the economy produces a plethora of jobs and the unemployment number stays steady or rises, this would actually be good news. It means that our economic recovery is finally starting to reach mainstream America. The low labor force participation rate is one reason the Fed has been able to hold off raising rates for so long into the recovery. It is also one reason that wages have not risen as jobs have been created. Hopefully, this will soon change.


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

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