Fritz Pfister

In my last posting, a couple weeks before the end of the first half of 2006, I shared that a new record for home sales would occur in the Springfield, Illinois real estate market. The final numbers appear to be in, with maybe a few stragglers yet to be reported. The Capital Area Association Of Realtors member brokers reported to the MLS a record number of homes did in fact sell during the first half of 2006, with 2132 closed residential listings. The brokers also reported a record number of new listings were added to the inventory as well, with 3476 residential listings added to the beginning year 1540. In other words a record 2132 listings sold and closed from 5016 that were available, or 43% of the listings sold and closed.

The new record for sales in the first half of a year was accomplished due to the best first quarter on record, sales actually slipped during the second quarter from last year. Sales pending closing also slipped from 2005, and are down 7% entering the third quarter.

With interest rates rising above 7% on 30 year mortgages for the first time locally in 4 years, a rebound does not seem likely. The saving grace for the market continues to be a good economy with unemployment being reported at a 5 year low of 4.1%.

The price of fuel exceeding $3 a gallon for gasoline, combined with the rising interest rates will continue to cool the local real estate market. The 7% interest rates are still historically low, about 1% below the 20 year average, however is having a psychological impact upon the consumers. Yesterday a consumer inquired about a listing, when told about the 7% rate, said that they were going to sit tight, because they currently have a 5.4% 30 year mortgage. This is a trend I expect to continue which will diminish moves of convenience, and impulse sales.

The price of gas will impact home sales in the outlying areas, with fewer people wanting to pay for the commute to Springfield to work. This should help sales within the immediate vicinity of Springfield. Regardless, the disposable income of consumers is being eroded by the expense of gas purchases.

The Federal Reserve may not be through raising rates, especially if they suspect inflation within the economy. A double edged sword, the rising gas prices fuel inflation as the cost of fuel purchases by corporations are added to consumer products. The demand for higher wages by employees to offset the increase in fuel costs, and interest rates, if granted, also is inflationary. There we go from a two edged sword to a viscous cycle.

The cost of money to consumers is not restricted to mortgage rates. Revolving debt such as credit cards increases with the Fed’s increases. The cost of credit to business also increases, and is passed along to the consumer, or the bottom line is lowered. The combination of higher gas prices, higher credit card payments, and higher mortgage rates are the culprits that help slow home sales.

The real estate market is not bad, it has arrived at a soft landing. Home sellers face the most competition for buyers in a decade. There are buyers in the market, however there are 3 to 4 sellers for every buyer. This should drive home prices lower, as home sellers that need to sell, adjust their price to obtain a purchase contract.

In light of the soft landing that has taken place, my advice to you who want to purchase another home and currently own a home, is don’t buy before you sell. If you have hefty cash reserves, can afford 2 house payments for up to a year, and are willing to discount the price of your current home 5 to 10% below market, only then should you buy before you sell.

Yes we have had a soft landing in the Springfield real estate market. The market is not bad, activity remains brisk, however the glory days are behind us. It’s just like my recent fishing vacation when it was difficult to get the fish to bite. I was told “You should have been here last week”.