Fritz Pfister

If you are thinking about buying or selling a home, now is the time to jump into the Springfield housing market. Here’s why, government intervention into the market is ending this year.

Due to the financial collapse the the government passed a first time home buyer tax credit within the stimulus bill to spark home sales amid a depressed housing market being dragged down by record numbers of foreclosures. How effective was the program? Seems paying people to buy a home worked as home sales jumped, and to a record level locally in the fourth quarter.

The local market was down over 10% through the first five months of 2009, when the tax credit caught the attention of home buyers that resulted in eight straight months of increased year over year home sales. On November 6 the government announced they were extending the first time buyer tax credit, and expanding the credit to include repeat home buyers. These credits state that qualifying buyers must have a home under contract by April 30, and closed before July 1st.

Back in September and October prospective home buyers had no indication the tax credit would be extended, and rushed to the market to get their $8,000 from Uncle Sam before the deadline of November 30th. This robbed a lot of future demand with sales pending falling in November, December, January, and through the first two weeks of February, although activity has picked up substantially the past two weeks.

The up to $8,000 first time buyer tax credit, and the $6,500 repeat buyer tax credits sound like a good reason to jump in the market now so you don’t miss the April 30th deadline. However that is not the main reason you should jump into the market now if you want to buy a home.

Here’s the reason. On Thursday the headlines of the SJR Business section said all you need to know; “Bernanke predicts less stimulus, higher rates.” More about the stimulus part in a minute, the important part is, higher rates.

As part of the governments plan to spur economic activity the Federal Reserve under Bernanke implemented a $1.3 trillion bond buy down program to keep interest rates low on consumer loans for credit cards, car loans, and mortgage rates. That’s all coming to an end this March.

That means the bonds being sold that determine interest rates will be whatever the market will bear. Investors will want a higher rate of return than  what the Fed accepted, which will drive up mortgage interest rates. By how much? We’ll have to wait and see.

The one thing I remember from past years is that when interest rates start fluctuating, they go up faster than they go down. Back in the 1990’s it wasn’t unusual to see 2% swings within a day. Nobody knows what’s going to happen with rates, but here’s the dollars and cents impact upon borrowers. A $100,000 mortgage amortized over 30 years at 5%, 6%, and 7% have monthly principal and interest payments respectively of; $536.82, $599.55, and $665.30.

A one percent increase in interest rates from 5% to 6% means you will pay $62.73 more a month, $752.76 more a year, or $5,269.32 more if you stay in the home the average of 7 years. If rates go up to 7% from 5% you will pay $128.48 more a month, $1541.76 more a year, and $10,792.32 more over 7 years. I’d say that gives you thousands of reasons why you’re better off buying now than later in the year. Tax credits aside.

This should be of special concern for home sellers. When interest rates go up, the buying power of buyers goes down along with home prices. However that’s not all home sellers need to be concerned about. The artificial market created by tax credits causing demand now will weaken demand later.

A major concern is the number of home buyers that will remain in the market after April 30th is due to the economy. Springfield’s unemployment rate is at the highest in decades, and the city is estimating about 95 layoffs are impending if the city can’t work out a suitable arrangement with unions. Regardless the outcome, it’s not going to be good for anyone involved. Need we say anything about the state’s jobs picture?

At the federal level President Obama wants another stimulus plan he is calling a jobs bill. The first stimulus plan was predicted to create 3.5 million jobs by the end of this year. The stimulus has failed to create any jobs, however the president claims 2 million jobs have been saved. Sorry that’s not the same as creating millions of jobs. Well over 3 million jobs have been lost since the stimulus passed. A resounding failure by any objective measure.

Now the new stimulus called a jobs bill, has hit a snag. House speaker Pelosi passed a $150 billion bill in December full of more spending. The senate didn’t agree and passed a bipartisan bill out of committee for around $85 billion. Senate leader Harry Reid then pared that bill down to $15 billion. The touted jobs bill that was to be passed with urgency is now in trouble. In other words we can’t expect anything positive from congress in the immediate future that will help the private sector create jobs.

And that doesn’t matter anyway if the congress and the president continue to believe more spending, placing future generations in hock, is the answer to creating jobs. It didn’t work the first time, why should we believe it would work this time?

The administration says the stimulus plan brought us back from the precipice, and has stabilized the economy. Maybe so, but that’s not what they said the big risk borrowing would do. They now predict the economy will add 95,000 jobs a month for the remainder of the year. That is so pathetically weak it doesn’t even match the birth rate. The jobs outlook for the year isn’t shaping up to look very good.

What’s the solution? Make it easier for the private sector to create jobs, and you do that with tax cuts so businesses have more operating revenue to hire, and people have more income to spend on goods and services instead of taxes and government debt.

The bottom line is that if I’m a home buyer, I’m getting into the market pronto so I don’t have to pay thousands more later due to rising interest rates, and to get that free government money from the tax credit.

If I’m a home seller the hair on my neck would be standing up. I know if my house is not sold by April 30th when the tax credit expires, and interest rates go up combined with weaker demand due to rising unemployment, then selling my home just became significantly more challenging.

Not to worry, anybody can work under ideal conditions, but not everybody can work under unfavorable conditions. That’s why we’re here, and why we’ve been here for Springfield folks since 1987. This isn’t our first rodeo. If you want to buy or sell a home in these uncertain, and unpredictable times, give us a call at 652-sold. In fact we have immediate openings for 8 home listings. We have pre-approved buyers working with us to find them a home. Call us or e-mail us, it would be an honor to be of service.

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

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.