Mixed Signals in Springfield Illinois Housing Market
May 3rd, 2009Several months ago I predicted that the Spring market would be the most active of the year with the number of home sales rising above last year, however at lower prices. This was following two months of declining sales, and faltering home prices to begin the year.
The strong activity the last two weeks in February in home listings going under contract was the primary reason for the prediction for the increase in home sales, while the demand versus supply quotient led me to believe home prices would be subdued.
Home sales did spike in March and were up over 13% as the February sales pending indicated, however not at lower prices as the median sale price was up $10,000 to $115,750 March from March. However sales pending began to wane in mid March with preliminary sales data showing home sales down in April over 12%, and once again at a higher median sale price than the preceding April.
Sales pending stand 8.5% below one year ago this date indicating home sales will probably be down May over May. We’ll have to wait and see how the median sale price settles following those that in fact close.
The potent combination, that should be attracting home buyers to the market in droves, up to an $8,000 tax credit for first time buyers, a once in a lifetime opportunity to buy a home at interest rates below 5%, and the second largest inventory of homes for sale on record for this time of year, has not produced droves of buyers. In fact sales are running close to 25% behind the average for home sales in the Spring markets of 2003 through 2007.
So I was wrong that there would be more home sales, at lower prices this Spring. There are fewer sales at higher prices. I underestimated the impact of these historically low interest rates. Should have known when rates go down prices go up, but what I don’t understand is the fewer number of sales. It must be jobs. I guess it doesn’t matter how low interest rates are if there aren’t new jobs being created to supply the market with new buyers. It appears we continue to just trade spaces.
The one mistake a home seller should not make with this information is to assume prices are rising because the median sale price is up 7.7% the first four months of 2009 from 2008. An $105,000 median sale price means half the homes sold below and half above that mark, in spite of economists using the median sale price to determine whether prices are rising or falling in any given market.
With the second highest number of homes for sale for a Spring market, combined with fewer sales, the days on the market from listing to a contract is around four months, and fewer than 30% of the available listings this year have sold and closed. There also have been dozens of sales documented where families that purchased homes in the sellers market could not sell again at or above their purchase price. In other words with the stiff competition for fewer buyers, home sellers would be making a terrible mistake to over price their home if they must sell.
My advice to home sellers that must sell would be to focus their attention upon the price of their most immediate competition. To base their pricing upon closed sales could prove to be a mistake. Sure closed sales can give you a bench mark, however if your competition that has been on the market for months lowers their asking prices below the prices of closed sales, and you price at or above closed prices, then buyers will snatch up the lower priced homes, before yours. Then you would join the gaggle of home sellers spending months on the market and lowering your price below what you could have obtained at the outset.
Mixed signals such as falling numbers of homes selling, while the median sale price increases, during unprecedented conditions favoring home buying, is enough to make market predictions as challenging as the 70% of home sellers that did not sell the first four months in 2009 are having in getting sold.
It appears my beginning year prediction that jobs would be the key to the number of home sales still holds true. Just imagine what the number of home sales would have been so far this year without the tax incentive and record low interest rates. We should count our blessings once again to live in Springfield Illinois, where in spite of declining sales, we continue to outperform the state and nation. Just ask the 20 major cities that saw a 19% price decline in March!
The opinions expressed are solely those of Fritz Pfister, and not RE/MAX Professionals of Springfield or RE/MAX International.
