Housing Market Poised for Strong Year
January 29th, 2012That’s the headline in the SJR’s page 25 Outlook 2012. CEO Dan Sale and President Todd Musso of The Capital Area Association of Realtors both provide compelling opinions for a rebound in the local housing market. Let’s hope they’re right and I am wrong.
Musso says the only unknown factor is consumer confidence. Todd is right, if consumer confidence rises we will have a strong year. My question, what will cause consumer confidence to rise?
Will we see a big uptick in jobs? Jobs are the key to increased home sales from my vantage point. If we had the lowest interest rates in 2011 since Adam asked Eve out on a date, and home sales fell to their lowest level since 1998, what other reason could there be than the lack of jobs causing the weak demand?
The construction projects within the medical community will add jobs. The medical community will add jobs due to our aging population having body parts breaking down. Thanks to the baby boomers the medical community will have no problem with demand for services.
The new HyVee, County Market, and Legacy Pointe expansion will add to jobs but may be offset if the Cook Street Post Office is closed.
Government has always been the number one employer in Sangamon County, until 2011 when overtaken by the combined numbers of the health care industry. Why? A state government that is out of control, lacks leadership and the resolve to tackle budget deficits, and pension liabilities.
After punishing individuals with a 67% and businesses with a 46% income tax increase, revenues fell $1.07 billion below projections and the state remains $8 billion behind on vendor payments. Do you think it’s fair to say we can’t count on state government increasing employment this year?
How about the county? The strong conservative leadership has kept the county solvent. Tough decisions have been made and the budget cuts necessary were made to keep from raising taxes. Andy Goleman appearing on Let’s Talk Real Estate said, we have cut to the bone, so we’ll be in trouble if there is another economic downturn and tax revenues decline. Wonder what is the probability of another downturn?
The city under the interim mayor and new mayor attacked the swelling city budget deficits and now have the budget under control. However at the price of jobs. Can the city and county be counted on to add jobs in 2012? Not realistically.
As jobs go so goes the housing market. It is called supply and demand. Musso correctly pointed out sales were down year over year in the first half because we were comparing sales to a 2010 market that had tax incentives for home buyers. Then sales picked up the second half of 2011 compared to the non tax incentive half of 2010. What Todd omitted was the second half of 2010 following the expiration of tax credits was the worst on record. A 33% drop in the third quarter stunned the industry. It appears all the tax incentive achieved was to rob demand from the second half of the year.
Of course had Todd read my forecast for 2011, it was a no brainer, I predicted the first half of 2011 would appear worse than it was, and the second half better than it was. All due to the artificial influence of government into the market.
Personally the notion that consumer confidence is the unknown factor is being optimistic for the sake of being optimistic. The tax increase, the highest average cost per gallon of gas in history, and food inflation the highest in twenty years have devastated most families disposable incomes.
With the energy policy coming from the Obama administration, does anyone believe consumers will get relief from falling gas prices? Food follows the price of gas, the key ingredient to food inflation.
What exactly is there that could raise consumer confidence this year? Job creation looks to be up slightly at best. Gas prices look to be volatile with Obama rejecting Keystone, his EPA slamming expensive regulations on energy producers, and although opening up more area’s for exploration, has the permitting process slowed to a crawl with only 30% of applications approved in 2011.
With the high national unemployment rate continuing it’s record length since the technical end of the recession, and frankly understated and people know it, we get the news that the GDP grew a pathetic 1.7% in 2011. The promise of Obama that government spending would lead to recovery has failed, even after spending $10 trillion in three years.
As John Ransom Finance editor at TownHall.com reported [quote]:
Obama has spent over $10 trillion since becoming president and we have nothing to show for it. For that kind of money you could have seed-funded a developed economy, like Germany’s, Italy’s or France’s and completely rebuilt every industry from scratch. You have to try really hard to spend money like that and not create any jobs. [end quote]
Forecasts are for 2.5% growth next year by the Federal Reserve. Many private sector economists predict less than 2%, some less than 1%. The debt Obama has dumped on America not only failed to create jobs it now will serve as an anchor preventing job creation as we pay the bill. No help increasing consumer confidence here.
So jobs, high gas and food prices won’t increase consumer confidence. Why is this unknown to the association heads? I think consumer confidence is easily predictable. The only chance consumer confidence will rise and give a boost to the economy, is when it becomes apparent Barack Obama will be defeated. People now understand it is Obama’s anti-business, big government, record spending, central planning, over regulation, and threats of tax increases that are keeping the nation from recovering.
I hope the association is right and we are not just poised for a strong year, but we in fact realize a strong year. However I’m sticking with my forecast that home sales will decline again in 2012 slightly, by 2% to 4%. Check back at the end of the year, we’ll know if I was right, or if I was ecstatic to be wrong.
The opinions expressed here are solely those of Fritz Pfister or identified sources, and not necessarily those of RE/MAX Professionals of Springfield or RE/MAX International.
