Weekly Observation for November 28, 2009
November 28th, 2009There was a mixed bag of news this week regarding the economy. The number of people filing claims for unemployment fell last week to 466,000. The number of first time claims were the fewest since September of 2008, when the financial meltdown was announced.
Consumer spending rose .7% in October as consumers loosened up their purse strings. Car sales led the way following a down month in September. The jury is out on retail sales this Christmas as many retailers have already begun deeply discounting product.
Closed sales of new homes rose 6%, at the same time building permits fell to the lowest number since April. Sales of new homes continue to run more than 60% below the record set in 2005. The city of Springfield reported 11 single family permits were issued in October bringing the total to 101 through the first ten months of 2009.
It was reported that the surprising number of 36 permits issued in September weren’t all that surprising when it was revealed that one company was issued 30 permits for the replacement of homes destroyed by the 2006 tornadoes.
As a result of the first time home buyer tax credit that originally was to expire on November 30th, closed home sales are on pace for possibly the best November on record. Through the end of business Friday local Realtors have reported 307 closed home sales. The record is 322 set in November of 2005.
As reported here, the concern was for a slow down following the expiration of the tax credit with people buying before they planned, weakening future demand. That concern has been verified with sales pending down 7.83% this November from last November. The good news is that there are currently 20 more sales pending still in the pipeline than last year on this date. However the 256 home listings under contract are the second lowest since 2004, and are down 29% from the record for this date back in 2005.
How much demand was consumed by the initial tax credit? We’ll have to wait and see. This time until the extension expires on April 30th. The credit was expanded to include people who buy a home who have owned a home five consecutive years of the preceding eight years. Following the historically slowest home selling season of Thanksgiving through New Years we should see a very active housing market the first four months of 2010.
The key to the number of home sales will be demand. That boils down to jobs. The Illinois Department of Employment Security reported Springfield’s unemployment rate at 8.2% in October, which remains second lowest in the state behind Bloomington. That’s good we are faring better than other communities, however that still means fewer buyers will be in the market because there’s fewer people working.
The extension of the tax credit will stoke demand after the first of the year, however there is an expiration date. Most people think four months is a long time, however in the world of real estate that is but a nano second. Especially for folks that will need to sell their homes before they can buy another home to qualify for the $6,500 tax credit.
It takes time to properly prepare a home for sale, choose an agent, begin the marketing plan, and then wait until an acceptable contract is received. One hundred eight days is the average this year. There’s only 153 days until the new tax credit expires.
With the number of jobs falling, the question becomes how many first time buyers will be left to purchase a home after first time buyers rushed to buy this fall? That’s a lot of first time buyers who are no longer in the market.
In addition to jobs we need to keep an eye on interest rates. Rates continue to run at historic lows. If a family can sell their current home, and purchase another home receiving a $6,500 gift from tax payers, and get their new mortgage at rates below 5%, that will be a blessing.
Nobody knows what interest rates will do, however most mortgage experts are calling for these rates to remain low through the spring. Many predict that rates won’t begin to rise until the economy rebounds and starts adding jobs, or until the Federal Reserve bond purchase program ends.
That looks to be a ways off. With $500 billion in Stimulus money expected to finally be released next year, there could be a temporary jump in job numbers. The Federal Reserve still has $300 billion remaining for bond purchases. But you don’t know how long this will last.
My advice is to take advantage of this remarkable opportunity while you can. When rates do go up you don’t know when they may fall below 5% again. Maybe never in your lifetime. This is only the second time this decade rates fell below 5%, and for the first time in over forty years.
Of course you could wait to buy a home. However you might not get this low of a house payment again for another forty years if history repeats itself. That’s how remarkable your opportunity is today to buy a home.
Make this a great week from Fritz and Kristie Pfister and The Pfister Success Team Inc. of RE/MAX Professionals Springfield. Are you or someone you know thinking about selling their home? Due to the unprecedented success of our marketing systems we have immediate openings for home listings. Call us at 652-7653. It would be honor to serve your family.
The opinions expressed here are solely those of Fritz Pfister, or identified sources, and not those of RE/MAX Professionals Springfield, or RE/MAX International.
