Weekly Observation for August 20, 2011 The Calm Before The Storm. Are You Prepared?
August 20th, 2011The rumblings of a gathering storm can be heard. Headline after headline the past couple of weeks read Market falls on worries of recession. European entitlement states are collapsing under the weight of government promises that can no longer be kept that have been paid for with borrowed money. The socialist experiments fail again. With nations teetering on bankruptcy roiling the world financial markets the storm may be headed toward America. More on that later.
Big headlines yesterday in the Business section of the SJR: Better than average. A story about home sales in the Springfield area up 24% July over July better than the states 18% increase and certainly better than the nation’s 3.4% decline in existing home sales. News I shared with you weeks ago adding that we have to be thankful we live in Springfield.
This is where you get the whole story about the housing market. The paper printed a nice little highlighted chart showing the number of home sales for July dating back to 2000, saying that although sales were up 24% it was the second slowest July since 2000.
What the paper doesn’t know is that the Jacksonville Association of Realtors joined the CAAR MLS in 2005 and back loaded their sales to 2003. To make any apples to apples comparison to pre 2003 sales you must deduct Jacksonville sales. July sales were actually the second fewest since 1997, with July 2010 the fewest on record.
Oh, we’ll take the improving number of sales but home sellers need to put market activity into proper perspective if they want to sell, or must sell. Even with the 24% increase in July home sales were 25% below the high set in 2007. The median sale price has stabilized and year to date is up four tenths of a percent.
Good old steady as she goes Springfield housing market. There are a couple of indicators that nobody but myself would notice that represent rumblings of a storm about to hit our market. How bad of a storm will it be remains to be seen. The two indicators are the number of homes for sale listed between $75,000 and $100,000, and the number of homes that are reported under contract.
This is the first time homes listed between $75,000 and $100,000 have exceeded 300, and the inventory exceeded a six month supply since 2008. You do remember 2008. This is a clear indicator of the lack of first time home buyers without many if any jobs being created. On a side note the unemployment rate increased to 9.5% in July in Illinois. The tax increase probably doesn’t have a thing to do with the 25,000 jobs lost in the state this July. Just saying.
The second indicator is the number of homes reported under contract by member brokers of the CAAR MIS has fallen below the number under contract on this date last year. Why is that important? Because last year was the slowest on record, and we just fell behind that pace of sales.
There is an anomaly in the financial markets. With nervous investors concerned about another recession the stock market has fallen significantly with many investors trading in their stocks for U.S. Treasuries. This has driven interest rates to the lowest on record predating the time of 30 year loans. Thirty year mortgages below 4% for the first time ever. If we had any type of job growth homes would be selling faster than corn dogs at the state fair.
Back to the storm on the horizon. In my opinion we never have gotten out of recession except only by technical definition. The headlines from Thursday’s SJR Business section provides the loudest clap of thunder: Wholesale inflation surges. I have warned since 2009 that high inflation was unavoidable and that will harm an already fragile housing market when interest rates go up.
The reason this is doubly disconcerting is because the inflation we are experiencing today is caused by high fuel and commodity prices. The real seed of inflation was planted by Federal Reserve Chairman Ben Bernanke doubling the money supply in one year and buying $3.2 trillion dollars of U.S. debt with printed out of thin air dollars for the QEI, and QEII programs.
The inflation due to energy costs is unnecessary due to the Obama administration imposing moratoriums and drilling bans on U.S. oil limiting the supply of oil, and by the EPA blocking the Canadian pipeline that could supply 750,000 barrels of oil a day. This is a terrible policy that is costing hundreds of thousands of jobs, and has raised the cost of living on all Americans harming the elderly and poor the most.
Why are we in danger of another recession? Government, plain and simple. Obamacare has frozen hiring because the costs per employee are unknown, and contains $485 billion in new taxes. The Frank Dodd Finance law has made obtaining loans more difficult and added excessive regulatory burdens upon community banks. Thousands of new bureaucratic rules are being imposed driving up costs on businesses by tens of billions of dollars.
These anti-business policies and laws are preventing a recovery. Without job creation the economy can’t recover and neither will housing markets. Initial claims for unemployment rising above 400,000 again this week, news that existing home sales fell, and declining manufacturing in the northeast are all indicators the economy has stalled and may be headed back to recession. Hence the falling stock market.
Even as bad as government policies have made this economy, this is actually the calm before the storm. In my opinion we have not seen the worst yet. This is your opportunity to prepare for another downturn until we can change leadership to one that understands economics and is pro-growth, and pro-business.
If you are thinking of selling a home do it now. If you are renting and know you will be in the area at least five years, buy a home now. You will at least have locked in a low cost for your housing.
Here’s an example. Working with a single lady who is paying $780 a month in rent which will certainly rise when inflation hits, and hit it will. She was considering a home that she could purchase for $78,000, with today’s low interest rates the bank calculated the payment on that home including taxes, insurance, mortgage insurance, principal, and interest at $441 a month on an FHA loan with a 3.5% down payment.*
A $339 monthly savings to own versus renting at today’s rental price. Renter’s don’t let this ship sail without jumping on board.
Yes, this is the calm before the storm, and you must ask yourself; Am I prepared?
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.
* I inadvertently omitted that the buyer was also receiving a $10,000 grant available for median and below income people from the Federal Reserve Bank.
