Fritz Pfister

Now in my 15th year of hosting Let’s Talk Real Estate Saturdays on WMAY, and tracking home sales trends for 745 straight weeks, one consistent theme has been the  stability of the Springfield Illinois market. Steady Eddie, no big ups and downs, and usually performing better than the state and nation.

The financial market meltdown in 2008, which was due to junk mortgages from Fannie Mae/Freddie Mac packaged as high quality derivatives by Wall Street, and sold around the world, has changed even this historically stable market. Why?

Government created crisis followed by government imposed solutions. The arsonists sent to put out the fire. The solutions? Primarily tax credits to home buyers, and interest rate manipulation. Both have caused activity that would not normally occur within a free market. For every action there is a reaction.

Real estate always has been a supply and demand business. To have a clear picture of the results created by government actions, one must look at the history.

In February 2009, to much pomp and circumstance, the Stimulus Bill was signed into law. Within the bowels of this massive bill was contained tax credits for first time home buyers. The goal; spark economic activity by paying first time buyers up to $8,000 to buy a home by November 30, 2009.

It takes time to get the word out to the public about new programs and incentives. The public caught on by May 2009 when the number of homes going under contract began rising. Good thing because the first five months of 2009 had closed home sales down over 10% from a bad first five months of 2008.

Sales increased every month as the November 30 deadline to close and receive the tax credit approached. The result? A record tying fourth quarter for homes sold. Having budgeted $18 billion for the program in the Stimulus Bill, congress saw the public reaction when the actual cost came in at $35 billion. Hey, people must like this program.

Seizing upon perceived success congress on November 6, 2009 extended the program to having a home under contract by April 30, 2010 which had to be closed prior to July 1, 2010. The program was also expanded to repeat home buyers.

Although month over month sales increased each month December through March, the gains were modest in the face of record low interest rates and the extended and expanded tax credits. In fact in the first quarter of 2010 the number of closed home sales increased by only forty-four (+6.77%) over the first quarter of 2009, which had the fewest home sales since Q1 of 2001.

Why such a modest increase with the historically unprecedented opportunity to buy a home? Record low interest rates and the government paying you (with other peoples money) to buy a home? Back to that darned old supply and demand nature of the business.

The demand for homes was satisfied with the record tying fourth quarter resulting from the initial government program. This caused a peak in November and a valley to follow through March.

However, never underestimate the power of procrastination. As the April 30th deadline approached, winter turned to spring, buyers rushed the market to take advantage of the free government money, and to buy before interest rates increased. The result? Closed home sales April over April will be up over 30%.

Pending sales stood at an all time record high of 671 at the end of business on Friday April 30. Pending sales are the indicator for future closed sales. This means the record 459 closed home sales in May 2006 could be challenged. June closings could be a different matter. It is doubtful the 467 closed home sales in June of 2006 can be eclipsed. Another peak in activity due to government incentives, and deadlines.

Ok, closed sales will be up in May, but what about sales pendings in May? Where will the demand come from with the tax credits expired? Would it be prudent for congress to extend the tax credits again? I say not only no, but hell no! Let the market correct itself and you will have a much more dependable set of market conditions. This would be better for all future home sellers.

If the tax credits were extended again the American people will begin to expect it, just sit back and wait for the next round of congress’ generosity with taxpayer money to buy a home. It was bad policy I opposed in the beginning, because now we are headed for a valley in home sales again.

Not to worry, there are always people needing a home. The reasons for selling a home will return to the basics. Death, divorce, marriage, transfer, lost job, out grew the home, too much home, and desire to move up.

Although we will experience a valley in home sales as to what we could normally expect over the next couple months, the market won’t be dead. Just slower than normal. Not the kind of news you want to hear if you have to, or must sell your home.

If we could just get government out of the way, home owners in Springfield would have a much more predictable future when deciding to sell their home.

I’ll take Steady Eddie, no big ups and downs in the market. Peaks and valleys are for outdoor enthusiasts. There’s not going to be much to get enthusiastic about in the Springfield Illinois housing market for the next couple months. Except the reports from the local media how sales have sky rocketed in April, May, and June. Happy days are here again! Or are they?

Any bets they report about the valley we have just entered? Or that the local media even knows? They will in a couple months when closed sales have ‘unexpectedly’ fallen. A good reason to listen to Let’s Talk Real Estate on AM970 Saturdays ten to noon, or streaming live at WMAY.com. Especially if you must sell your home, or care about the value of your home. Pertinent advice at the right time.

Sales data as reported by member brokers of The Capital Area Association of Realtors MLS.

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.