There were encouraging signs for the Springfield housing market the week following Valentines Day. Local Realtors posted 94 sales pending for the best week of the year by far. The burst in activity pushed the sales pending for the year a dozen ahead of the same time frame in 2008.
The real barometer however is the number of closed sales because not all the sales pending will close. Through February 20, closed sales lagged 25 behind 2008, or down by 8.6%. February of 2008 was one of only two months in the year to post gains over the previous year. So this is good news.
One important market factor to consider is pent up demand. The Springfield housing market had sixteen consecutive months of year over year declines in sales pending. February 2009 has a chance to end that downward trend.
Interest rates and home prices are the driving forces in the housing market. It was reported in Sunday’s January 22 edition of The State Journal Register that prices were down only one half a percent in 2008, and listed the local markets gainers and losers by price for 2008. What wasn’t reported, and is vitally important for home sellers to understand, is that home prices fell the second half of the year by 4.3%, and are down 8.9% the first seven weeks of 2009.
The most affordable home prices since about 2000, combined with interest rates at the lows of the late 1960’s and early 1970’s, are probably the reason for the recent burst in home sales activity. Then add in the pent up demand that has been building over the preceding two years, and market fundamentals point toward a rising market.
The impact of the $8,000 first time home buyer credit will be helpful. A grand opportunity was missed when the tax credit was not offered to all home buyers. Many prospective home buyers that currently own a home will probably sit it out due to falling prices. That could be a mistake on their part.
The best time to make a move up purchase is when prices are down. The percentage loss on these homeowners sale will be offset by a gain in the lower price of their move up home, that would have cost substantially more in a market with rising prices. Financing that move up purchase at near historical low interest rates is a bonus.
The announcement this past week that the state of Illinois is shopping for 60,000 square feet of office space in downtown Springfield is huge. This reverses a six year trend resulting from our embarrassment of a previous governor moving thousands of jobs out of the state capitol.
There is currently over 600,000 square feet of vacant office space available in Springfield, not to mention the jobs this may create during a tough economy.
A record number of homes remain available for sale locally. The foreclosure phenomena continues to add homes to that inventory, and is a major contributor to falling home prices.
In my opinion the downward pressure on home prices will continue throughout the year. Here are the reasons; supply and demand, foreclosures; and the economic doom and gloom attitude of consumers due to the media, and the president talking down the economy. Home prices will not stabilize until the inventory returns to normal levels, and consumer confidence rises.
The Springfield housing market has proven to be historically resilient. It would not be surprising if there would be a gains over 2008 in the number of home sales during the typically strong Spring selling season, however at lower prices.
Let’s face it, consumers have been put through the mill the past year, and are in no mood to be spending more than necessary. Seeing their retirement funds cut in half, and wary of gas, food, and energy prices, consumers aren’t going on a spending spree anytime soon. Especially when ninety two percent of homeowners may face the possibility of bailing out troubled homeowners. We’ll know when the details to the foreclosure plan are released on March 4.
There are too many unknown variables that will impact the market. Illinois was left in a state of financial disaster by Blagojevich, so it would not be surprising to see tax increases. The Federal government is spending money it doesn’t have at a record pace.
The Feds will either have to borrow the money which will increase by the tens of billions the annual debt service, or have the Federal Reserve print the money which devalues the dollar and will give birth to hyper inflation. Both will lead to tax increases. Neither of these scenarios inspires consumer confidence.
Tax increases by either, or both the state and federal governments during a recession would further erode consumer confidence. Higher taxes usually result in less tax revenues for the government, as businesses cut payroll, and consumers spend less.
These are very nervous times for the American consumer, and that includes the families of Springfield. The faltering economy is evidence of consumer fear, spending drives up the economy, and spending drives down the economy. It is indeed a vicious cycle, however who can blame the American consumer for playing it close to the vest under these circumstances?
Which direction will the Springfield housing market go? In the next several months I would bet on up. After June I wouldn’t bet on a thing.
Fritz Pfister is a Realtor with RE/MAX Professionals Springfield IL. and a leader in the local real estate market hosting a one hour radio program, now in its’ 13th year. With nearly 2000 real estate sales, Fritz is recognized as a leading market expert.
Fritz’s website is
SpringfieldHome.com
[tags]Springfield Illinois housing market 2009[/tags]
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