Fritz Pfister

The local real estate market is having its best start to a year for the number of home listings going under contract in years. There were 100 home listings that went under contract this past week for the first time since the week ending September 3, 2011, bringing the total number to 929 for 2012. That represents an increase of over 20%.

This good news is tempered a bit when looking back over the preceding five years of a tumultuous housing market that has seen a recession, a financial meltdown, massive job losses, record high gas and food prices, low consumer confidence and spending, Stimulus spending, record deficit spending, tax credits to home buyers, record low interest rates, Leviathan financial regulatory laws, and historic state income tax increases all impacting the local housing market.

Here’s the history of the local housing market going back five years. 2007 was a banner year, although the nation entered a recession in December, 4024 homes were sold. Then came the summer of 2008 when gas prices shocked consumer wallets closed with $4.25 a gallon gas along with skyrocketing food prices.

This was followed by a financial crisis in the fall of 2008 that purportedly threatened to throw the US and world into a Great Depression, although in my humble opinion the crisis was overstated so a former Goldman Sachs CEO acting as Secretary of Treasury could scare a president and congress into bailing out his Wall Street buddies. Paulson’s plan worked and TARP was passed, followed by a housing collapse. Home sales in Springfield dropped over 13.3% from 4024 in 2007 to 3488 in 2008.

Then 2009 arrived with a new administration who took office claiming that government spending was the solution to the bad economy, and would put America back to work. The Stimulus bill was passed which included an $8,000 tax credit for first time home buyers. Before the Stimulus money began being spent in earnest The Great Recession ended in June of 2009. Home sales jumped from 3448 in 2008 to 3719, up 7.8% but still well below the over 4100 average of the boom years.

With the home buyer tax credit expiring, congress added to and extended the credit from November of 2009 to run through the end of April 2010. Consumers reacted accordingly, and many moved their purchases up to take advantage of the government largess. Then the local housing market took a dive beginning in May with home sales falling 33% in the third quarter and 2010 ended with 3442 home sales, fewer home sales than during the meltdown year of 2008.

The market became dependent upon jobs to supply buyers in 2011, which did not happen. The Stimulus which was to have created 3.5 million jobs by the end of 2010 ended up only adding to our national debt. The fact is another 2.1 million jobs were lost. Due to the failure of the Stimulus to create jobs in the private sector causing unemployment to rise, revenues to governments at levels fell dramatically.

This resulted in two harmful events to begin 2011 that impacted the local housing market, the loss of government jobs more than offset job growth in the private sector, and a historic tax increase on families and businesses were passed by the state.

The tax increase was sold on the premise it would allow the state to pay its back bills to vendors. However, just as I predicted here, the money raised was a billion below projections, the additional six billion in tax revenues raised was spent elsewhere, and the back bills grew by another billion dollars. Proving again you can’t trust politicians with more money. They always find a way to spend more, and that’s exactly what they did. Now the fiscal crisis at the state is worse with the governor slashing more jobs and wanting to close facilities across the state.

Due to the fiscal mess and incompetent leadership at the state causing job losses at all levels of government, the year 2011 finished with the fewest home sales in our market since 1998. This in spite of interest rates that fell below 4% for the first time since the 1950’s. Once again proving jobs are the key to the housing market. People that don’t have jobs, or who are nervous about losing their jobs don’t buy homes.

Here we are entering 2012. Interest rates continuing at record low levels and mother nature delivering the fourth warmest winter on record, and the housing market became abuzz with activity. After four tumultuous years it feels like we’re in the midst of a housing boom, but the reality is we are scratching our way back to normal.

With one business week remaining in the first quarter, listings going under contract may be up 20.33% over the same time last year but are 119 shy of the five year average for pending sales. Although sales pending are up over 20%, the 523 closed sales are up only 6.73%, and are 163 closings shy of the five year average. So you see, it’s great that sales activity has spiked, but it is not all that it’s cracked up to be.

Can we get back to normal from here? Time will tell, however in my opinion the rush we are seeing in the local housing market is due strictly to pent up demand, it certainly isn’t due to a bunch of jobs being created. When this pent up demand is satisfied it’s over.

How long will this activity fueled by pent up demand last? Nobody knows. This I do know, if you want to sell a house in 2012 you have a better chance while the rush is on than when it ends. The summer of 2012 could be deja vu all over again just like the summer of 2010. We learned that year the tax credit in the spring simply robbed demand from the summer. This year it just may be a mild winter that is the thief.

Can we get there from here? That is, back to normal? Not with the current economic fundamentals. Slow to no job growth, and gas looking to go above $4 a gallon again during the driving season. Gas prices could take the wind out of the sails just as in 2008, and again in 2011.

It’s all about jobs folks. As the jobs market goes, so goes the Springfield housing market in 2012.

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.

Happy St. Patrick’s Day! May the luck of the Irish be with you.
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