Fritz Pfister

There appears to be an abundance of experts when the subject is the housing market. When you read reports in the newspaper, how often have you read; ‘the numbers surprised experts’, ‘the increase was greater than/less than expected’? Pardon me as I attempt to prognosticate on the local housing market from the vantage point of working within the industry daily since 1987. I am a firm believer in the old saying “economists have accurately predicted eight of the last two recessions”.

There is a clear consensus that the media has killed the housing market according to professionals working within the housing industry. For example, I was picking up to go pizza at a local establishment when the owner asked me; ‘how’s the market?’. My answer; ‘the truth is not bad at all, sales of homes are only off 4.9% from 2006, the inventory of homes for sale is the largest on record, and unbelievably the median sale price is up. The only problem is the media is killing the market’. Just at that moment the big screen tuned to Fox News flashed “Slumping housing market drags on economy’.

Every day for the past year and a half the relentless attack by national and local media has soured the consumers view about the housing market. Real estate, like politics, is local. For example the 4.9% drop in closed home sales from 2006, was from an all time high. No news outlet bothers to report the local story, whole story, or good news. Consumer confidence in the housing market must be reaching all time lows resulting from the media assault. Consumer confidence is factor one for my forecast.

The economy of Illinois is wounded due to a lack of leadership in state government, an anti business tax and spend governor, a complicit senate president out of the famous Illinois political hack mold, anti-business fee increases/legislation, resulting in weak job growth. Corporations and business owners have not been as leery about the government as a foe instead of an ally, since my arrival in Illinois in 1980. New jobs are vital to the housing market. Without new people entering the community sales stagnate, and families that move, end up just trading spaces. Weak job growth equals weak demand, factor two in my forecast.

Interest rates. How affordable is it to buy a home? Extremely affordable with the 30 year rates below 6.5%. With the credit crisis created by the sub-prime market failures, the Fed is taking action to avoid a national recession by lowering interest rates (among other actions). Affordability of mortgage money is factor three in my forecast.

Home prices locally are up for the year by 4% to a median sale price of $104,000. I expect this number to fall back to $100,000 by years end matching the highest ever on record from 2005. The median sale price in the local housing market is about 45% of the national and state median sale price. Home prices are factor number four in my forecast.

Availability of housing (supply) in the local market is at an all time high with over 1940 homes listed for sale by local Realtors, and hundreds more being offered by owner and by builder. In fact the inventory is up 45% in just four years from the sellers market of 2003. Factor number five, supply. The availability of housing.

What weight should be given to each of the five factors that must be considered when formulating a forecast? With the affordability of housing costs, mortgage costs, and a record supply, I am giving the most weight to consumer confidence and demand equally.

With current trends indicating the first significant slowdown in home sales locally in over a decade, I would look at weak demand and consumer confidence as the reasons. The first three weeks of October compared to October 2006, has closed home sales down 11%, and homes sold pending down 29%. This on the heels of falling sales and sold pending sales in September.

Based upon these factors the remainder of 2007 will experience a continuation in a slowing number of home sales, and the year 2007 will finish down six to eight percent in the numbers of homes sold for the year. Remember 2006 was only 29 home sales shy of the all time record. The media will probably spin the news as a market crash when it is a modest slowdown.

What about 2008? There’s another factor not mentioned previously; the weather. Closed home sales will be down in January due to slower sales activity in December. Expect near normal market activity in the first quarter with falling interest rates. Don’t expect any big moves in activity as long as the media continues to kill the minds of consumers, and demand remains weak. The only reason we would not see normal market activity and home sales, would be due to bad winter weather. I mentioned earlier that real estate is like politics, it’s local. When the weather is bad on election day fewer people go to the polls; same true for the real estate consumer.

What is the forecast for 2008 in the local housing market? It’s too early to tell, however until the market can shed the excess inventory of homes for sale, and as long as demand remains weak due to government policy adversely affecting businesses, resulting in anemic job growth, don’t expect much to change. It will be a buyers market until demand catches back up to the supply, and we have a confident consumer.