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The labor market’s recovery has been a long and arduous one; considerably longer than previous economic recessions. This was a credit recession that hit the consumer and the “little guy’s” assets a lot harder than previous recessions. Companies were more reluctant to hire, frightened of more potential economic waves, crashing upon their balance sheets, together with the global crisis, as opposed to previously more domestic recessions. This economic recovery has seen many workers continue to exit the work environment, significantly in more numbers than previous recessions. Even back to 1973, we had workers returning to the work place, while other workers kept their jobs. In the current “recovery,” we continue to see workers leaving the work place, as others are being hired; a chilling concern, and another example of why this recovery is taking so long to bounce back, from such low unemployment figures. Layoffs are beginning to cease, however. Finally, a good sign!
Young people are finding it more difficult to enter the work force, as older workers are forced to delay their retirement, since the financial crisis ate up their equity in their investments and home values. According to the Census Bureau, American Community Survey, twenty-five to thirty-four years olds from 2005 to today, saw the largest drop in home ownership. However, the good news is that with the housing recovery, seemingly on its way, we may see a reversal of these delayed retirements, giving younger people the opportunity to get hired, save a down payment, and get into the housing market. With companies like Chico’s Build.com, we may have an opportunity to see this at a faster pace than the rest of the nation. A tight supply of homes is going to increase desire, and therefore values. As these values increase, it gives sellers an opportunity to finally sell, and not lose money. We are seeing existing and new home sales climb nicely, however nowhere near the levels of 2005 and 2006, nor even close to 2000 levels. So, a note of caution is that this growth has been partly attributed to low interest rates. Will this sustain as interest rates climb with the announcement of the tapering off of the government’s interest rate producing mortgage backed securities’ purchasing program? That’s a big challenge for the Federal Reserve to try and balance.
It’s interesting to note that about two months ago, when Federal Reserve Chairman Ben Bernanke mentioned that the government was considering “tapering” its $85 Billion a month bond purchasing program (which is what has kept interests artificially low for the past few years), then again, this past week, his ambiguous comments caused the markets to panic, again, sending interest rates over a full percent higher, and in some cases close to one and one-half percent higher than just two months previous to the comments, that you would hear Dr. Mark Palim, Director in the Economic and Strategic Research group at Fannie Mae, indicate that with inflation being pretty subdued, and unemployment coming down only slowly …”at this point the balance is still toward continuing the bond buying, and perhaps sometime in 2014, reducing it, or stopping it.” And Fed member Richard Fisher indicate that any tapering would be a long, drawn out process. Powerful words, from very knowledgeable people, however, which statement do you think moved the markets and interest rates so abruptly? Incredible! Also it’s interesting to know that Bernanke’s job is to keep markets calm and to not stir the financial world into indecisive decision making based on a Federal Reserve Chairman’s words. So, was this a calculated statement to “test the waters” of the government’s decline of purchasing treasuries? It’ all very interesting to ponder, however, what protections does the consumer have? Banks have started to roll out 345 day locks. That’s right! Now, you can protect yourself, from rising rates, by paying an up-front fee to lock in for up to about one year. This is particularly helping for new construction. As builders take on risks of building new homes, and interest rates climbing, potentially creating an effect of kicking a number of buyers out of qualifying for their mortgage payments, long term locks can be very helpful. Also, as rates climb, don’t forget the mortgage insurance buy-out programs that don’t have that monthly payment tacked onto qualifying ratios…enable buyers to keep their payments lower, and continue to stay approved, for their agreed upon price. Also, 21 day closing programs, offered by only one lender in town. These are things to keep in mind, as the economy continues to grow, uncertainty in the market place, as well as comments by policy makers and financial conductors of the world, create a jittery market whereby interest rates are a Nervous Nelly.
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