2014 Forecast

Amazingly enough, the first quarter has come to a somewhat positive end. Here’s our forecast for the rest of 2014. As always, our annual forecast is available on our website EmpyreanFunding.com I strongly encourage all of you to peruse our prior year forecasts and predictions. While a one year forward prediction is not as complex as longer term predictions, a look back at a longer trend is much more difficult and a true testament to our ability to look forward and provide clear guidance.

As always, our sincere gratitude goes out to you, our clients for entrusting in us some of your most important business decisions. We don’t take your confidence in us lightly and will continue to deliver trusted, reliable advice to you as our partners.

Now for 2014. We have a new Fed Chairman – Janet Yellen and she hasn’t wasted any time to change the Fed’s focus from unemployment to inflation. Bernanke made it a point that the Fed would continue to stay involved in the markets until unemployment dropped to or below 6.50%. While this was an important benchmark at the time, Yellen realizes that the reason unemployment is falling is not because the economy is improving rapidly and jobs are being created quickly and in abundance. On the contrary, the economy is not creating enough jobs and people are exiting the work force! The labor force participation rate has fallen from 67% to currently close to 63% creating a false sense of employment. In reality, the current unemployment would be over 11%.

Yellen’s concern is that inflation is running at lower levels than what the Fed is comfortable with and continued monetary easing is probably the best way to insure a 2% inflation rate which the Fed targets. Failure on a sustained basis to have 2% inflation may bring back serious concerns of deflation, which the Fed will not tolerate in any way. In fact, inflation fears have remained in check as there are no signs of real inflation throughout the global economy.

In 2013 I wrote, “I continue to watch for deflation as a larger concern than inflation as excess capacity and lack of wage growth will keep inflation in check. De-leveraging will also continue at a rapid pace as the massive debt bubble that exists globally continues to be unwound.”

What a difference a year makes! Real Estate and housing has improved dramatically as delinquent loans and foreclosures have dropped dramatically. Low mortgage rates are helping drive the real estate recovery as the costs to carry a mortgage continue to be at historical lows. A very healthy stock market has also helped restore a lot of confidence which flows over into real estate. Interestingly, the highest recorded percentage of buyers are investors vs. owner users in the housing sector.

Multi-family property values in most areas have out-performed other segments of the real estate sector. This is primarily due to the reduction in home ownership pushing more people to rent and the lack of new construction and new product.

As for interest rates, for years we have been of the opinion that the 30-year Treasury bond rate could not maintain its high. For many expecting higher interest rates, the wait has been expensive. Even with the recent increase in rates, our view remains the same. Interest rates may, will and have gone up based on periodic changes in psychology. However, the underlying fundamentals will insure that they will not continue to rise as we expect rates to remain at the current levels with a downward trend through the end of 2014.

As always, we are here to assist you on all of your commercial and residential real estate loan needs. Feel free to call or email us with any questions or concerns.
P. Jacob Yadegar
Empyrean Funding Inc.
Your Mortgage Loan Specialist
Commercial and Residential
310-571-3681 fax

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