January 2012 Views You Can Use

Despite what the Mayan calendar may say, the world probably won't come to an end in 2012. But like 2011, this coming year may bring some significant challenges here in the US...and around the world. Here are just a few important topics to keep an eye on in the new year:

• Working for a Living – The labor market made modest improvements in 2011…but what should you expect in 2012? Here’s the answer!
• Home Sweet Home – The housing market is still uncertain, but here’s something to celebrate!
• What to Watch – Inflation is extremely influential. Read the article below to discover what to watch in 2012.
• Q&A: The Bottom Line? – What’s the bottom line for 2012? The answer may surprise you!

Best wishes to you and yours in the coming year. If you have any questions or would like to discuss your unique situation, call or email today. And please forward this newsletter to friends, family members and coworkers who may find the information helpful.

Working For a Living: The Labor Market in 2012

The mantra “I’m taking what they giving ’cause I’m working for a living” was made famous in the 1980s by the band “Huey Lewis and the News.” Today, the feeling is the same around much of the country as many Americans were able to find work in 2011. But we’re not out of the woods yet, as many more workers are still searching for employment.


The labor market made modest improvements in 2011, and that trend is likely to continue in 2012. As you can see in the bar graph next to this article, the number of new people claiming unemployment each week saw a drastic improvement by the year’s end compared to the high reported the last week of April 2011. Recently, the number of new claims has stayed below the important line of 400,000 new claims each week. That’s a welcome site compared to most of 2011.


That said, it’s a good bet that the official Unemployment Rate will remain north of 8% throughout 2012, as more gains in the private sector are offset by government jobs being removed with our belt tightening measures. Another factor to consider is that Baby Boomers who are headed into retirement will be removed from the labor force, and this continuing shift in our country's demographics will help add to the decline in the unemployment rate.


Rather than looking at the official Unemployment Rate, which always brings up controversy due to its methodology, we should start looking at the labor force’s "participation rate," as this may be a more accurate reflection of labor market conditions. This rate is a little more straightforward, since it simply measures the number of people eligible to work against the number of people actually working.


And get this: the current labor force participation rate is 64%, which represents the lowest level of eligible workers participating in roughly thirty years. One of the contributing factors to the decline in the rate is the aforementioned effect of the Baby Boomer generation retiring and leaving the labor force. However, that only makes up a portion of the decline in the rate as obviously, there are still lots of folks looking to "participate" in the workforce, but they haven't been able to find a job. With businesses still somewhat reticent to hire until they feel more confidence, estimates are for little to no improvement in the participation rate in 2012.


This is obviously a very important topic not only for people looking for work but also for the economy as a whole. I will continue to monitor the labor market and its impact on housing and home loan rates over the coming weeks and months.

Home Sweet Home

On the one hand, the housing market still remains uncertain. For instance:

• Foreclosures will still be a concern in 2012 as a fresh wave will be hitting the market…and that will prevent a broad-based pricing recovery in housing. However, the good news is that the delinquency rates have declined and should continue to do so.
• While some parts of the country are seeing signs of improvement in housing, others continue to struggle. Overall, home prices will likely decline modestly in the first half of 2012 and then recover in the second half of the year.
• Rentals and investment properties will continue to be popular in 2012 as more people continue to rent.

On the other hand, we are closer to the bottom in housing and with historically low rates in 2012, it will be another incredible purchase opportunity for homebuyers.


In fact, it looks like home loan rates could move a leg lower in the first part of 2012, as rumors continue to swirl around the possibility of the Fed stepping in with a third round of Quantitative Easing (or QE3), and this could lead to the lowest rates ever. HOWEVER…like all windows of opportunity, this one may be short as well. History has shown that Bonds move higher in anticipation of Quantitative Easing, but then selloff once the official announcement is made. Think about the old investing adage: "Buy on the rumor, and sell on the news." So the best home loan rates may be seen leading up to any actual announcement.


If the Fed doesn't do QE3, rates will still be very attractive in the first part of year, before moving a bit higher in the second half of 2012 as the economy continues to pick up. Overall, the early part of 2012 looks to be a great environment for interest rate, which means lots of opportunity for homebuyers.


Regardless of what happens at the Federal level, I’ll be here ready to help you get the best home loan for your unique goals and situation. And if you have any friends or family members who could use some insight and help navigating a home loan, please forward them this newsletter along with my contact information. I’m always happy to help out in any way I can.

What to Watch: A Breeze of Inflation

Inflation, as measured by the Core Consumer Price Index, ran at 2.2% from November 2010 through November 2011. That was up rather sharply from the previous year and was closing in on the comfort range threshold of the Fed. What is interesting and a little disturbing to note is the increasing consumer inflation in the face of stagnant wage growth. Typically, consumer inflation increases are fueled by wage-based inflation, where wages move higher…but we are not seeing that just yet.


With US consumers still behaving conservatively, the political climate promoting uncertainty and the labor market only making modest improvement, inflation may still tick higher to possibly 2.5%. But that would still be considered within the tolerance limits of the Fed.


Of course, even if the inflation number is within the Fed’s comfort, any increase can negatively impact home loan rates. Remember: inflation is the archenemy of Bonds and home loan rates, so inflation ticking higher would not be good for rates. But inflation (and its impact on rates) doesn't exist in a bubble or an isolated test tube. Home loan rates are also impacted by other economic factors. Part of the magic in watching rates and how they behave is understanding all the competing factors at play. So the coming year will be an example of why it’s so important to work with a knowledgeable mortgage professional like me, who understands the complexity of the markets and can help identify opportunities for homebuyers.


As always, I’ll be watching the inflation news closely in the coming months…and I’ll continue to share any important news that may impact you or the economy as a whole. And if you ever have any questions, please just call or email.

Q & A: The Bottom Line

QUESTION:What’s the bottom line for 2012?


ANSWER: The bottom line is that opportunity lies around every corner. For people looking to purchase a home, the abundance of affordable housing and historically low home loan rates will create a number of opportunities. And for those seeking to refinance, this may prove to be another year where you can move into a better mortgage.


If you have any questions at all as we enter the new year, please call or email. It only takes a few moments to look at what’s going on and to discuss what it means to your unique housing and financial goals. 

Best wishes and happy New Year!