mcarristo

Over the last eight months interest rates have gyrated more dramatically than in years. This process has not only whipsawed investors but seriously called into question the nascent housing recovery. After all, how can housing starts rise from their near historic lows if rates are one percent higher than they were in late spring and with interest rates expected to rise somewhat higher over the course of 2014? Is not the housing sector highly interest rate sensitive? And isn’t the Federal Reserve deliberately buying tens of billions a month in mortgage backed securities to keep 30-year mortgage rates low to help the housing market? Relax. While new residential construction is indeed interest rate sensitive, it is also heavily dependent on other macroeconomic factors and they will more than compensate for the recent rate rise.
To use an analogy, interest rate movements are like a thermometer. A rise in body temperature may or may not be a good thing; it all depends on the initial level. A rise in body temperature of two degrees from 94 degrees to 96 degrees is excellent news and suggests a patient recovering from hypothermia. By contrast, a rise in body temperature of an adult from 102 to 104 is serious, and suggests a very ill patient in need of prompt medical attention. Changes in interest rates should be similarly viewed.
Interest rates are the cost of borrowing money. When times are good and economic growth is robust, interest rates rise because investors borrow funds for investment purposes while households borrow to finance purchases of cars, houses and other big ticket items. This increase in demand raises rates and this rise is healthy. Returning to our thermometer analogy, this would be like a rise from 96 to 98 degrees. Sometimes, however, the economy grows so fast that shortages of workers and supplies start to materialize, resulting in inflation. If allowed to fester, inflation can spin out of control. That is why interest rates continually rose during the 1960s and 1970s. Eventually, things got so bad the Federal Reserve raised rates to 20% to weaken the economy and squeeze inflation out of the system. This would be equivalent to a rise in body temperature from 103 to 105 degrees. This rise was necessary but was a sign of a profoundly sick economy.
Until recently, despite amazingly low interest rates, no one borrowed; witness the ridiculously low levels of new home construction and investment in plant and equipment by firms, because everyone was pessimistic about the future. This would be akin to fall in temperature from 95 to 93, a bad sign. However as the economy improves, and trust me it is, albeit way too slowly, and as we become increasingly optimistic about the future, interest rates will rise and this is what is finally starting to happen. The thermometer is now in the process of going from 94 to 95.
In this early phase of the recovery, firms hire workers, begin buying equipment and start building plant. As a result, unemployment rates decline, wages start rising and household spending increases. And this boosts GDP growth, which results in yet more corporate spending and more household consumption on, among other things, housing. Given the immense slack in our economy this process could last several years, accompanied by slowly rising interest rates akin to the thermometer rising from 96 to 98.6!
Elliot Eisenberg, Ph.D. is President of GraphsandLaughs, LLC and can be reached at Elliot@graphsandlaughs.net.  His daily 70 word economics and policy blog can be seen at www.econ70.com.
By: Elliot Eisenberg (GraphsandLaughs)
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NAR Commercial Issues Brief – February 2014
Issue: Alternative Minimum Tax (AMT): On January 2, 2013, President Obama signed into law the American Taxpayer Relief Act, providing a permanent “patch” that prevents tens of millions of taxpayers from being subject to the alternative minimum tax (AMT), starting with the 2012 tax year. Specifically, the measure sets the exemption amounts (i.e., the amounts yearly for inflation. It also allows various non-refundable personal credits to be claimed against the AMT. The AMT was created by the Tax Reform Act of 1986 to prevent higher-income taxpayers from using credits and deductions to completely offset their federal income tax liability.
NAR Action: NAR successfully worked with Congress to ensure a permanent patch to the AMT.
Issue: Basel III: The Federal Reserve, Federal Deposit Insurance Corporation (FDIC), and Office of the Comptroller of Currency (OCC) have finalized a new risk-based capital category – High Volatility Commercial Real Estate Exposures (HVCRE) for commercial acquisition, development, and construction (ADC) loans. Specifically, the new  changes raise the risk-weight for an ADC loan from 100% to 150%. In response to the final changes, it is highly likely that banks would be substantially change their current lending practices and reduce the amount of available credit in order to avoid the higher capital charges associated with ADC loans
Continue reading….Click here to view source website or Click here to view source article via carnm.realtor.
(NAR Issue Brief)

 
The US Bureau Of Labor Statistics have issued fresh job growth projections for the positions with the most job growth over the next eight years. These numbers hit the web in December and I caught up with them while doing research projections for growth in demand for medical properties.
The table from BLS I’ve linked to points to the medical sector growing in the next ten years with very clear indicators. with the largest growth in jobs expected to be in the position personal care aides, followed by registered nurses coming in at number two.
While news like this surely brightens the mood at healthcare REIT offices and at other real estate enterprises meeting the expansion in demand for medical care coming with the greying of the population,  health care is not the only sector in the top three of BLS job growth expectations.
At the #3 position we find retail salespersons, currently at 4.4 million jobs and expected to be at 4.8 million in 2022, for a bump of 9.8%.
At #5, food preparation including fast food ( 2.9 million currently, 3.4 million expected in 2022, for a expected bump of 14.2% over next eight years).
Some interesting facts:

• Of the top ten job descriptions, only two (nurses and nurse assistants) needed more training than high school.
• Of the top ten, six require only grade school education.
• The lowest-paying median annual wage on the list, food preparation, ranks fifth on the list at $18,260.
• Four of the top five positions were in health care

Take away what you will from the Dept. of Labor’s tea leaves, but one thing is clear. We can add the BLS to the giant pile of indicators that healthcare is expanding to meet the needs of a newly insured (and aging) populace.
By: Wayne Grohl (The Source)
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Community development consultant and author Peter Kageyama’s new book “For the Love of Cities” uses economic, social and psychological perspectives to look at cities and property markets to uncover the relationships that drive value. Peter shares insights into how we can turn peoples’ emotional engagement with their place into tangible action. Listen and be inspired about how your role in commercial real estate can make a difference in creating love for your city or town.
By: (National Association of REALTORS)
Click here to view source article and listen to podcast.