Weekly Observation for December 11, 2010 Springfield Illinois Housing Market, Here We Go Again
December 11th, 2010Here are the numbers for the local housing market for November 2010 compared to 2009. Closed home sales 230 down 133 by 36.64%. Sales pending 288 up 26 by 9.92%. The median sale price $103,500 down $3,500 by 3.27%.
Here’s the year over year comparison through November; closed home sales 3178 down 299 by 8.6%. Sales pending 3950 down 407 by 9.34%. The median sale price $110,000 up $1000 by .92%. This has the Springfield market on pace for the fewest home sales since 1999.
It’s not all bad news because we are doing significantly better than the nation and the state. Due to the record low interest rates throughout the year, together with the fact Springfield did not have the big run up in prices during the boom-bubble cycle, Springfield home prices have remained stable. This on the heels of a report by Zillow that home owners, due to falling home prices, lost $1.6 trillion in home equity this year, and $9 trillion since the beginning of the recession. No wonder consumer confidence is low.
I’ll be honest with you about the economy, it scares me, and I’m fearless. Here we go again, headlines in today’s SJR Business section; Federal deficit sets November record. More on this in a minute.
As reported here the uncertainty for businesses on taxes for 2011 would probably be settled in the lame duck congress. This week the president reported he had struck a compromise with Republicans that would extend the tax rates for two years. Initially I was relieved, but then here we go again, part of the compromise was a 13 month extension for unemployment insurance that wasn’t paid for adding to the deficit, and a 2% social security payroll tax holiday for one year, adding to the insolvency of social security.
Now we don’t know if any bill will pass extending the tax rates, continuing the uncertainty for businesses. Democrats have revolted against the president in the house because of their ideological desire to raise taxes, especially on the wealthy. But that’s not what is going to stop the bill. What is imperiling the bill comes from the senate where Reid is playing the bribery game just as he did to get Obamacare passed, and is loading up the bill with hundreds of billions in pork.
One can only pray that Republicans will remember the message voters sent on November 2, stop spending and don’t raise taxes. If they allow this bill to pass then they will have ignored the will of the voters and violated their own pledge to cut spending. If this bill passes adding nearly another trillion dollars to the deficit then the economy is in real trouble, and so will be the housing market.
Here’s why. Do you remember last week I shared with you Greenspan said U.S. deficits could spark a bond crisis? He said the deficit may begin to frighten bond holders which would undermine the recovery and push us back into recession.
Then this week Noriel Roubini renowned economist with N.Y. University said the president’s deal to extend the Bush era tax cuts would cause bond traders to demand higher yields on fears of deficit related risks. Roubini followed with this foreboding omen: “We should be clear in our minds that the fiscal situation in the U.S. is much worse than Europe. In one or two years, when the European debt situation stabilizes, attention of financial markets will definitely shift to the U.S. At that time, U.S. Treasury bonds and the dollar will experience considerable declines.” That means high inflation and interest rates.
In other words it appears our president and congress will trade short term relief for long term risk. The solution would be for the current tax rates to be extended permanently, and voted upon as a sole issue without all the lard. That would allow businesses to make plans for longer than two years which would have a bigger impact on jobs. If the people agree with the Democrats then they can re-elect them so they can raise taxes later.
Extend unemployment insurance but pay for it without adding to the deficit. Do the same with the one year 2% social security payroll tax holiday. Use unspent Stimulus money that is already calculated in the deficit. By taking these actions we can calm the concerns of treasury buyers.
Just as I am preparing my Springfield Illinois housing market forecast for 2011, here we go again. The biggest obstacle to the economy proves to be the government. Even if the tax issue is settled providing some certainty for businesses there remains two other government roadblocks to recovery because of their unknown costs, Obamacare and FinReg.
Here’s what financial guru Larry Kudlow said on Townhall.com [quote]:
Large and small companies remain worried about the high regulatory and tax costs of Obamacare, which is the number-one jobs-stopper. How expensive will it be over the next five to ten years for the new hire? Companies also have to deal with a crazy quilt of new financial regulations that may block access to new bank loans when private credit demand picks up. [end quote]
A two year extension to tax rates will have minimal impact. Hiring would pick up nominally the next two years, and economist’s forecast for growth in the GDP next year have been increased to 3.5% to 4%, if tax rates are extended. A potential 2 million jobs could be created. Better than this year, but still woefully short of the 5% to 8% growth necessary to create a significant number of jobs. This has proven to be the slowest recovery following any recession in 65 years.
However this isn’t the most immediate concern for folks. Those who put gas into their cars and do the grocery shopping know what I’m talking about. With an anti-fossil fuel energy policy the president has banned more domestic oil production contributing to $90 a barrel oil. This could lead to $4 a gallon gas, and sharply rising food costs. Should this happen consumer spending will fall along with confidence and renew the vicious cycle. Here we go again.
My advice is if you are happy with your home and you haven’t refinanced or if you are renting and qualify to buy a home do so ASAP. Our government’s over-reaching regulations, unconscionable spending, energy policy, and micromanaging of the private sector has us headed for potentially disastrous economic times. The very least you should do is to insure your housing costs going into this uncertain future. An affordable roof over your head could be priceless in the coming years.
With an out of control, unpredictable, and irresponsible government causing problems instead of solving them, formulating a forecast for next year will be a challenge to say the least. I will announce my forecast on New Years Day on Let’s Talk Real Estate.
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.
