Fritz Pfister

It’s that time of year to predict where the local housing market is headed for the upcoming year. To be able to make predictions within the housing market you must make several assumptions, and predictions about the key factors that influence home sales. Interest rates, employment, consumer confidence, and supply will determine the demand for homes.

Interest rates affect the the amount of demand, and at what price buyers will be able to spend. Low interest rates usually leads to more home sales and higher prices. When interest rates go up prices go down along with demand. 

My prediction for interest rates is for little change to begin the year, and then rising slightly through the remainder of the year. At the current trend with the Federal Reserve stating their intent to keep interest rates low for as long as necessary to help establish an economic recovery, interest rates probably won’t move more than 1% the first half of the year.

The challenge becomes what type of recovery, and how strong of a recovery can be expected in 2010. Will the stabilizing economy continue to edge slowly upward with little or no job creation, as many economists predict a jobless recovery?

This is the problem with the predictions business. President Obama promised he would create 3.5 million jobs by the end of 2010 with new economic policies and a massive Stimulus program. This prediction has not materialized. Obama also predicted unemployment would not rise above 8% if the Stimulus bill was passed. That too did not happen. So far in Obama’s term through November, employment has dropped by 3.3 million jobs, with the unemployment rate at 10%.

Following a recent jobs conference steps are now being taken to make lending to small businesses more available. Combine this with hundreds of billions of stimulus dollars to be released in 2010, and there just might be a bounce in job growth.

This brings us to my prediction for interest rates in the second half of the year. If the economy in fact does add jobs then interest rates will go up, if the jobs market remains flat or loses jobs then interest rates will remain low. I predict rates will remain low, between 5% and 6.25% during 2010.

Locally the unemployment rate remained at 8.2% in November. Government is the largest employer locally.

The state of Illinois is in financial crisis with an estimated $11 billion deficit. We can count out any job expansion from the state in 2010. Depending upon who is elected governor, there may be an increase in 2011 if the thousands of jobs moved out of Springfield during the Blagojevich administration are returned to the Capital city.

The city of Springfield is also in a financial crisis with an estimated $8.5 to $12 million budget shortfall for 2010. The mayor has stated that jobs will have to be cut in order to balance the budget. That rules out any job growth from city government.

The county budget is also being cut, which means jobs will be cut. The sheriff has already announced 14 deputies would be furloughed starting in January. No job growth here either.

The medical community is our second largest employer. For the first time in memory there has been talk of the possibility for job losses within the medical community. The inability of the state to pay its bills, the current law suit which capped damages in suits that kept doctors from leaving the state may be reversed, and the unknown consequences of a national health care bill have all cast doubts about jobs in the medical sector.

All this doesn’t add up to a very rosy picture for job creation. The result of a capital plan from the state, and the stimulus plan from the feds, may create some temporary construction jobs that will keep the unemployment rate from rising further. Therefore my prediction, barring any major crisis, foreign or domestic, is job growth to remain flat in 2010, and possibly decline.

Consumer confidence remains low in the state and nation. A report this fall from the University of Illinois Economics Laboratory indicted that consumer confidence may rise to a reading of 70. A reading of 90 indicates economic growth. Consumer confidence will rise when people and businesses see a brighter and more certain future.

There are several factors depressing consumer confidence. The uncertainty about the job market. The cost of the proposed health care bill going to conference mandating the purchase of health insurance, rising insurance premiums, increased taxes, and increasing the national deficit doesn’t inspire confidence.

The potential for higher energy costs if Cap and Trade legislation is passed, the expiration of the Bush tax cuts raising taxes, potential tax increases from city and state governments, and the profligate spending by the federal government adding trillions of dollars to the deficit does nothing to inspire consumer confidence. 

Passage of either the health care reform bill or Cap and Trade bill is forecast to cost millions more jobs. This results in less consumer spending as families and businesses remain cautious.

This leads me to predict that interest rates, and the tax credits to home buyers that will expire on April 30th, will have a positive impact upon home sales. Employment and consumer confidence will have a negative impact. As a result this is my prediction for home sales in the Springfield Illinois market for 2010:

* The year will start slowly however the first half of the year will have the most of home sales during the year as consumers take advantage of low interest rates, and tax credits before they expire.

* Demand will weaken during the second half of the year as interest rates creep up slightly, and the lack of job growth fails to add any significant number of home buyers to the market.

* My prediction is for home sales to fall slightly by 3% to 4% with 3500 to 3600 closed home sales in 2010.

* Residential construction will remain weak with the majority of new home sales resulting from contract jobs and not speculative building. Expect the city of Springfield to issue 95 to 105 single family permits in 2010.

* The median sale price will fluctuate a little. Weaker demand may drive down the median price by 1% to 2%, however due to the inventory of homes for sale returning to normal levels, providing buyers with fewer choices, prices may increase 1% to 2%. The median sale price will finish the year between $108,000 and $110,000.

* The inventory of homes for sale will remain steady with 1400 to 1700 available at any given time. There will be 5100 to 5300 new listings added to a beginning year 1400 to 1450 homes remaining listed for sale from 2009. About 50% of the homes listed will sell in 2010.

There you have it, my fearless predictions for 2010. All in all it will be a good year. Not a great year but a good year in 2010. Another steady year for this historically stable real estate market during some very uncertain economic times.

Make this a great week from Fritz and Kristie Pfister and The Pfister Success Team Inc. of RE/MAX Professionals Springfield.

Thank you to all the families that have granted us the honor to serve them as we celebrate our tenth anniversary on Jan. 1, 2010. An incredible 1234 families successfully served in the purchase or sale of a home by the Pfister Team.

Thank you to the audience of Let’s Talk Real Estate as we celebrate our 14th anniversary show on Jan.2, 2010 and begin our 15th season.

Thank you to Al and Linda Young owners of RE/MAX Professionals, and all the agents and staff for putting up with me as I celebrated my 20th anniversary at RE/MAX this past Sep. 1, 2009. Kristie & I are humbled to have walked the path with all of you.

God Bless you all, have a happy, healthy, and prosperous New Year. May God bless America.

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.