Weekly Observation for August 28, 2010 Economy Slowing
August 28th, 2010This past Tuesday was meet the staff at my daughters school. I wish I had a dollar for every person that asked what was going on in the real estate market. That was the day that the SJR published the front page story; “Housing Woes Return”, reporting the 39% drop in home sales locally, and the 27% drop nationally in July. News we reported three weeks earlier on Let’s Talk Real Estate.
Wednesday I had the privilege to drive to Ohio for my parents 65th wedding anniversary on Thursday. While in Ohio the report was released that new home sales fell 12% in July from June to the lowest on record, but what wasn’t widely reported was that July new home sales were down 32% from July of 2009. There was one building permit issued in Springfield.
New home construction is simply in a depression across the country. Do you remember the SJR going gaga about building permits in April? Funny how government actions will cause reactions in the private sector. Those April permits were the local builders last chance to get grandfathered before having to follow the EPA mandated green building requirements, because Illinois had accepted stimulus money. It will cost builders about $20,000 more to build a home under the new mandates. That can be absorbed by many families with interest rates at today’s levels, but what happens when rates go up. New home sales will suffer.
Here’s the number of single family building permits issued by the city 19 in April, 9 in May, 5 in June, 1 in July. At last report about a dozen in August. Do you see a trend? We may have doubled the number of permits compared to the first half of 2009, but let’s see where we finish the year. We had between 300 and 400 permits issued annually during the boom, now we are struggling to get 100. Still better than the national average which is down 70% from the highs.
Did the tax credits really add more buyers to the market? Many say yes by simply looking at the record number of home sales in the spring. I say no, all the tax credit did was change people’s buying habits. In spite of interest rates falling only 233 home sales closed in July and with two business days remaining in August local Realtors had reported 189 closed home sales through the end of business on the 27th. There were 370 closed in August last year. We’re barely past half of last years sales.
The inconsistency in sales activity continued this week. Two weeks ago Realtors reported 91 listings sold pending, that fell back again this week to only 63. I believe we are still looking at a bump in activity for several weeks following Labor Day. This may be many home sellers last chance to get sold before next year.
In other economic news Fed Chairman Ben Bernanke spoke yesterday saying; “the economic outlook remains unusually uncertain.” He also stated: “I expect the economy to continue to expand in the second half of this year, albeit at a relatively modest pace,” That slow pace, he added, means that “the prospect of high unemployment for a long period of time remains a central concern of [Fed] policy.”
Bernanke’s speech followed the report that the economy grew at only a 1.6% annual rate in the second quarter adjusted from 3.4%. That isn’t good news and makes sense when seeing the jobless numbers following in now this third quarter. The weekly initial claims for unemployment fell to 473,000 last week but the four week average of 482,000 was the highest since last November.
Once again it’s all about jobs, and jobs aren’t created unless the economy is growing above 3%, and initial claims are below 400,000. Unemployment ticked up slightly to 8.5% in Springfield while the Illinois Department of Employment Security reported a loss of 600 construction jobs in the Springfield area. Although unemployment did move up only slightly, it remained the highest for July in over three decades.
That’s the reason homes aren’t flying off the shelf with interest rates at a six decade low. It doesn’t matter how low rates are, if you don’t have a job, you’re not going to buy a house, or much of anything else for that matter.
Oh to be a buyer in today’s market. The best interest rates they will probably ever get in their lifetimes, a rising inventory of homes for sale, and the fourth lowest prices for any city in the U.S. with a population between 100,000 and 200,000.
There really isn’t such a thing as a good real estate market or a bad real estate market. There just simply is a real estate market. It’s always good for some people, or it’s bad for some people. Today the market is best for a home buyer that doesn’t have to sell a home before they can buy. The market is worst for the home seller that must sell, and purchased their home at the top of the seller’s market.
Until there is a real recovery and people are getting jobs lifting consumer confidence, we will remain in this newly evolved housing market. Sales in the foreseeable future will run at about 75% of what we could normally expect in our market. It’ll be good for those that sell, and it’ll be bad for those who don’t. About one in four or five will sell the rest of the year.
Make this a great week from Fritz and Kristie Pfister and The PfisterSuccess Team Inc. at RE/MAX Professionals of Springfield. Are you in a situation where you must sell your home? It would be an honor to interview for the job. Now with 1300 closed home sales since forming our team in 2000. We have the experience necessary in markets like today. Call us at 652-7653.
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.
