Fritz Pfister

Home sales made the front page of the SJR this week as The Capital Area Association of Realtors announced sales for 2009. Realtors reported the first year over year increase in home sales in four years, with home sales increasing 6.5% from 2008. The median sale price was up 4.8% to $109,000.

Statewide total sales were down 1.5%, and the median sale price was down 14.6% to $157,000. Nationally home sales were up 4.9%, while the median sale price fell 11.9% to $173,200. So Springfield once again performs better in sales and prices compared to the state and nation.

Included in the story were comments by local businesses that they believe growth in 2010 will depend upon consumer confidence, and jobs. Exactly what we have said here for months to which we are in total agreement.

Last week the state reported the unemployment rate increased to 11.1%. What wasn’t reported in the SJR was the local unemployment rate. Perhaps that will appear in Sunday’s newspaper. WMAY reported Thursday that the Springfield unemployment rate increased to 8.4% in December up from 6.2% from the previous December. In today’s paper the AP reported the underemployment rate has surpassed 20% in 9 states.

No wonder the president in his State of the Union speech pivoted away from health care to jobs as his top priority. Unfortunately the president called for another jobs bill, or stimulus plan. This is causing concern because the stimulus plan that was to keep unemployment below 8%, and create 3.5 million jobs by the end of 2010 has failed on both counts. In fact over 3.5 million jobs have been lost since the stimulus was passed. What evidence is there doing the same thing again will change the results? There is none.

The lack of job creation is reaching a critical point for the housing market. A new record was set in 2009 for the number of foreclosures. According to The Heritage Foundation mortgage default and foreclosure rates today stand at a record high 14.4%, and each month that passes without job growth means tens of thousands more families will lose their homes to foreclosure.

The National Association of Realtors 2009 home buyer and home seller profile reports 8% of home sales in the Midwest were purchased at foreclosure auction, up from 3% in 2008. Not only has this contributed to the state’s falling home prices, it means home sellers will be competing with foreclosures again in 2010.

In what appears to be good news the fourth quarter saw the economy grow by 5.7%. It only appears to be good news because economists say the jump in fourth quarter growth was due to increased production to replace depleted inventories, and that will not be sustained. Economists project the annual growth rate at 2.5% for 2010, with unemployment rising through the middle of the year before settling around 10% by years end.

This is not good news for the unemployed, the underemployed, or those who have given up looking for work. It remains my contention that there is no recovery until there is job growth. This will only make the foreclosure crisis worse, and as Jay Brinkman of The Mortgage Banker Association said “mortgages are paid with paychecks, not percentage increases in the Gross National Product.”

Now the rest of the story about the local housing market that was not reported. Yes 2009 was the first year over year increase for home sales in four years, however was the second lowest in sales since 2002, besting only 2008.

January closed sales will finish up for the eighth consecutive month over month increase, perhaps by around 15%. But we must put that into proper perspective, that will be an increase over the slowest January for home sales since 2000.

The real story is in sales pending, those home listings going under contract, declined modestly in November by 2.72%, and in December by 3.77%. Pending sales stand 14.9% below last year on this date.

In spite of the extended, and expanded home buyer tax credits combined with record low interest rates, sales pending in January are down 25.47% heading into the final weekend of the month. This does not bode well for February closings.

Why the drop with such favorable market conditions? Three reasons; first spent demand consumed by the initial tax credit program. The government simply waited too long to extend the program.

Second, consumer confidence. Although it was reported confidence rose in December to 55.9%, that remains well below a reading of 90 that indicates growth.

Third, jobs. This week the city announced they may have to lay off as many as 77 more employees in addition to the 13 already let go, if the unions don’t accept proposed furlough days, and reduce agreed upon pay raises. The city also announced the same scenario at CWLP with a potential 54 layoffs.

The state, which is the areas leading employer, announced that the unions accepted the states proposal for furlough days, and reduced pay raises, however that still led to 150 layoffs.

None of these actions will boost consumer confidence, or consumer spending. City employees, CWLP employees, and state workers just lost pay, and anticipated wage increases. That will mean less consumer spending that will have a ripple effect throughout the local economy.

Yes we are reaching a critical point in the housing market due to the decreasing number of jobs. Without meaningful job growth the demand for homes will continue to decline, regardless of tax incentives or interest rates.

The president wants another stimulus plan of around $175 billion, when the first stimulus plan has failed to produce the predicted results. American families can’t wait much longer to see if this experiment will work. History shows when this was attempted before during the Great Depression, after eight years of spending and jobs programs the unemployment rate fluctuated over those years, however ended exactly where it began with 19% unemployment.

That is why I have no confidence another stimulus plan will work. In my opinion if you are going to spend $175 billion wouldn’t it make more sense to do that in the form of tax cuts for businesses? Yes part of the presidents plan calls for tax credits for hiring employees, however won’t that impact only a limited number of businesses? Why would a business hire someone at $30,000 a year for a $3,000 one time tax credit?

An across the board tax cut would benefit every business. Wouldn’t a business knowing it would have more operating revenue, now and in the future, be more apt to hire than as a result of a one time tax credit? 

Tax cuts have proven three times in modern history to increase jobs, and revenue to government. Actions taken by presidents Kennedy, Reagan, and Bush. The only reason the increase in revenues to governments at all levels didn’t last, was due to governments spending their new found money, and more. That is why I am not in favor of any tax increases, our representatives will just spent it and then some. They do it every time.

The way forward will be determined by our government actions. Elections are coming that could change these actions to benefit the economy. Regrettably, millions of American families don’t have the luxury of time. They need help now.

What will happen? Nobody knows for certain, however either way, if the jobs situation doesn’t improve, 2010 could prove to be a long year for any family that wants to sell their home. Sure the market will get busy, at least until the tax credit expires on April 30th, or until interest rates go up, but after that the future looks cloudy.

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.