Market Analysis

North Shore-Barrington Association of Realtors (NSBAR)
fourth Quarter Housing Report

John Tuccillo
JTA, LLC

1/18/10

Stuck In The Mud - But That May Not Be A Bad Thing

There’s not a lot of good news out there, for either the economy or the real estate market. We’re fighting through a deep recession that will drive the unemployment rate over 8.5 percent and drop GDP by about 10 percent. We haven’t seen a slump of this magnitude in 27 years, since the recession of 1982. We’re also facing the need to reconstruct the financial system to correct the excesses that have crept into the markets over the last fifteen years. It will be a smaller, more tightly regulated financial system, but it needs to be done if we have any realistic expectation that the banks will take what the Fed has offered and pass it on to the borrowing public. And the housing sector still languishes. We continue to see price declines and stagnating sales. The irony here is that three years ago, the real estate market set in motion the events that have now brought us recession and financial catastrophe, yet now real estate is poised for a comeback and is being held back by that very same economy.

The statistics for the fourth quarter of 2009 for the North Shore and Barrington areas illustrate this very plainly. While the numbers don’t look very good—sales and prices are still below a year ago—market relationships are essentially unchanged from 2008. If you look at the three key indicators (new listings, days on the market, ratio of sales to listing price), you see the same pattern for the fourth quarter as you saw for the second and third quarters. New listings are dropping consistently, a good sign for market recovery. While days on the market are up and sales to listing prices are below where they were a year ago, the relationship between 2008 and 2009 has been roughly constant for the past nine months. That is not necessarily good news, but neither is it worse news. In other words, despite the troubles burdening the Chicagoland economy, the housing market has not deteriorated any further.

There is, of course, some good news. Interest rates, thanks to the Fed’s very aggressive monetary policy are extremely low—as low as they’ve been in nearly sixty years. Thirty year fixed rate mortgages, the only kind anyone should use, are (as of mid-January) below 5 percent. Combined with current prices, this produces real values for anyone who has deep pockets and/or has nothing to sell. In other words, it really is a good time to buy real estate. Additionally, we’re looking at a massive stimulus package coming out of Washington. We will see $1 trillion of spending on short term, intermediate term and long term projects intended to put money into taxpayers hands (a suspension of withholding payments), create jobs (grants to state and local governments to fund infrastructure projects, and invest in the future (alternative energy and education programs). Right now we don’t know if this will work, but the odds are good. We’ve never seen the economy not respond to massive government stimulus. If it does work, we may see the economy come back sooner rather than later, say around September. Then we will see the housing market fully blossom again.