The Saftey of Buying a Home Now
I am a real estate broker, not a financial planner, tax expert, or an attorney at law. However I have been around a while, since 1951, one of the baby boomers. The advice in this article comes from intuition, common sense, and experience. You can choose to take it or leave it, but I believe for those who take this advice they will benefit in the next decade.
There’s a lot of talk of a double dip recession, and one that will be much more severe than the one we are currently experiencing. Economists, the president, and the fed chief can make all the claims they want that we are in recovery, but I’m not buying it.
There’s over 15 million people out of work, unemployment is near double digit, and when counting the underemployed with those who quit looking the rate is nearly 17%. There are 4.3 million families either in foreclosure or significantly behind on their payments. Nearly 50% of home owners owe more on their mortgages than their homes are worth.
This does not constitute a recovery. Because big banks and Wall Street are making money again while the middle class and small businesses are getting hammered is called recovery, doesn’t make it so.
My intuition tells me when we have a strict ideologue for a president and is governing from the far left, trouble is not far away. It has happened with every liberal president. Clinton was saved by a Republican congress balancing budgets, and by the tech boom when PC’s and the Internet exploded on the scene.
President Obama believes in wealth redistribution, that is taking the property of the producer to give to the non-producer. He is proposing that the Bush Tax Cuts for the wealthy not be extended. Arthur Laffer renowned economist predicts that this action alone will trigger a double dip recession.
What concerns me most is the national debt and the continued deficit spending. We just exceeded $13 trillion in debt. Forecasts are now to exceed $19 trillion by 2015. Who is loaning us all this money? Mostly foreign investors. What happens if we enter a double dip? Wouldn’t these investors stop buying our debt if our economy turns down?
When that happens the demand for the dollar will diminish. How will we fund our soaring debt? The Fed will print the money which always leads to inflation. How do you fight inflation? Raise interest rates above the rate of inflation. What happens to our debt payment when interest rates go up? They increase exponentially and we could be facing interest payments exceeding a trillion dollars a year, not leaving much to run the country or pay for national defense.
The cost of government is increasing under Obama as he has expanded entitlements to record highs, taken the work out of the Clinton welfare to work program, increased discretionary spending 27% then calls for a freeze, and will have spent over $3 trillion more than the government received in taxes in just two years.
Add to this my baby boomer generation that are paying taxes today but will begin retiring shortly becoming collectors of benefits. Social Security is in the red today, six years earlier than predicted. This will place a huge strain on the budget. Add in the cost of Obamacare and the deficit will grow by trillions more.
Folks this is not good. Common sense tells me there are more bad things that can happen than good. There is a real possibility that the housing market will go into a bigger decline than during the first recession, and that the stock market will collapse as early as next year according to Laffer, and others. Roubini says in an article “US Nears Disaster as Euro Zone Faces Zero Growth” on June 9th.
The primary problem we have is that we are being led by a group of people that don’t have any private sector experience, are either Marxist in ideology, or simply egg heads from Harvard, Yale, or Princeton who live in theory without any concept of reality. This is a group that is incapable of overseeing a free market economy. They believe government is the solution which will lead us straight into the next economic collapse.
If you are honest with yourself you know that these massive deficits, and debt are unsustainable, the ponzi scheme has to crash at some point. With the president governing from the left, taxing more, regulating more, and beholden to environmental extremists which will drive up the cost of necessities such as gas, food, and energy, disposable incomes will fall drastically. This leads to falling consumer spending. This results in higher unemployment when demand for products declines.
When will this house of cards collapse from the weight of these irresponsible economic policies? Next year? The following year? Maybe not even until after 2012? The one thing my gut tells me, although I don’t know when it will happen, I believe it will.
If all these dire predictions come true and we get a 1980′s dose of inflation and double digit interest rates, it will be a long slog out of the progressive swamp back to prosperity. A journey European socialist countries are just beginning. At least they have seen the light. Entitlement societies are unsustainable. Why must we repeat their mistakes when God gave us the greatest system in the world? Why must we veer off course and away from our founding principles?
Here’s my advice, take it or leave it. If you have a mortgage that’s one percent or higher than the going rate, refinance. If you have an adjustable rate first or second mortgage, refinance into a fixed rate immediately.
If you have not purchased a home and are renting, buy a home now. When inflation hits, and interest rates go up due to the falling value of the dollar and inflation, rents will go up accordingly. Buying today, and locking in a fixed rate loan below 5% at a payment you are comfortable with, will protect you from those astronomical rental prices that will come. Whether home prices fall or not is immaterial, you will be able to afford to keep a roof over your head.
Quite frankly I don’t know how many people didn’t buy a home with record low rates, and tax credits from a benevolent Uncle Sam using taxpayer funds. If you’re out there, you should seriously heed this advice or the next recession will be much harder to live through.
I’m as optimistic as anyone, and don’t desire you to translate this message as a doom and gloom pessimistic point of view. This is probably the most realistic, emotionless, objective, truthful advice you will receive. Listen to others that are in denial, pay too much for a home, continue renting, or make any of the other myriad of potential mistakes, and you will pay a price someday.
There’s a difference between Pollyanna, and reality. Whether you heed my advice or not, best wishes in all you do.
Fritz Pfister is a real estate broker in Springfield Illinois. With over 2100 real estate sales since 1987 is recognized as a local market expert. Fritz hosts Let’s Talk Real Estate live Saturday’s at 10am central streaming live on WMAY.com, and was voted best Realtor by readers of the State Journal Register for the past three years in a row.
Fritz’s website is
SpringfieldHome.com
Housing’s Cash For Clunkers Moment, Springfield Illinois..May Sale Pendings Drop Significantly
Do you remember the cash for clunkers program meant to spur car sales? Congress spent 3 billion dollars to incentivize folks to buy a car with about a $4,500 gift from taxpayers. The result? A record high August 2009, and a record low September for car sales.
A local appliance store owner shared with me they disliked incentives. The recent incentive by the state offering up $7 million of your tax dollars to folks to buy a more energy efficient appliance saw that money disappear in a matter of hours. Why? This owner said most folks that had placed orders to buy postponed their purchase until the day of the incentives. This hurt his sales before and after the program. What good did the incentive do for the appliance business, a net zero.
This is why I was opposed to the Stimulus bill which included tax incentives for home buyers. Did the program attract people to the market that may not have purchased a home without the incentive? Probably, but how do you quantify that, and wouldn’t those folks be smart enough to purchase a home anyway with prices down double digits across the state, and record low interest rates below 5%?
The result is the artificial market created by the government probably increased sales nominally, while poking a $100 +/- billion hole in the deficit that everyone will get to pay back with interest. The incentives also have created peaks and valleys in the Springfield market never seen before in my career which began in 1987. Where a professional could predict with reasonable confidence and accuracy future market performance for their clients, they now can only guess.
Sure closed home sales were up in May, but those were from March and April sales pending. The 415 closed home sales in May were up 28.88% or by 93 over last May, and was the third best May the past ten years. That’s all good, but this is where the peaks and valleys caused by the tax incentive comes in; sales pending of 299 down 147 or by 32.9% from last May, and down 340 or by 53.2% from April. In simple terms the number of buyers was cut by more than half in one month.
The first week of June continued the same trend. So what is a professional to tell their clients that need to sell their home? Good news, we’re closing out near record number of home sales on the homes sold in March and April, but we now have less than half the number of buyers in the market today. This doesn’t give current home sellers a warm and fuzzy feeling so they ask; What can we do to get sold? Lower your price to below all competing comparable homes.
It is quite the dilemma for the Springfield Illinois housing market, and I’m sure for markets all across the country. How long will it take to replenish the demand for homes? At the pace the economy is adding jobs there is little doubt demand will remain soft for months if not years.
The Bureau of Labor Statistics reported a disappointing net 431,000 jobs were created in May, however only 41,000 were private sector jobs, the rest government jobs consisting mostly of temporary census takers. The stock market tanked again as a result.
It was reported that even the census job numbers are misleading because the government is churning those numbers by laying off workers for a couple weeks, then rehiring them to make it look like a new job was created. In a couple months the census will be concluded, what will unemployment numbers look like then?
I have absolutely no confidence in the Obama administrations economic policies. They have failed and continue to fail, while the President says we are in recovery. Really? If you call the private sector creating 41,000 jobs heading into the summer when job numbers usually spike, and you need to add 150,000 a month just to keep pace with population growth, then you simply are ignoring or are ignorant of reality.
The pathetic economic policies of the Obama administration contributes to nervousness not only at home but abroad. Now in addition to Portugal, Italy, Ireland, Greece and Spain comes Hungary yesterday saying its economy was in dire condition. Once those dominoes in Europe starts to fall, if they do, then the contagion will seal a double dip recession in the U.S.
People realize this and are pulling in their horns with consumer spending falling for the second straight month. Businesses realize this and are not hiring. Both consumers and businesses are scared. People aren’t stupid, they know the dangerous path we are on with an out of control federal government spending the country into bankruptcy.
The federal government is broke but the representatives and the Obama administration continue to increase spending. This is insane economic policy, if Obama was right, that government spending created jobs and economic recovery, we wouldn’t have one person without a job today.
Why? Obama will add over $3 trillion to the deficit in only his first two years in office. Time to drive a stake through the heart of Keynesian theory, and return control of the House of Representatives to Republicans where all financial bills emanate. If the Republicans regain control of the house and fail to stop deficit spending, then drive the stake through the heart of the Republican party too.
Why all the gloom and doom? Believe me, it shouldn’t be this way, but people deserve to know the truth. This economy isn’t in recovery with over 15 million people without jobs and no jobs being created. Obama economic policy, which is at best crony capitalism, is helping wall street and big business, but devastating the middle class and small business. His government expansion is crushing the private sector as predicted.
Need we say anything about state government in Illinois? This has to be the most dysfunctional group ever to govern any state. The Chicago machine is bleeding the state dry with its stranglehold on the legislature. There either needs to be a change in leadership, or we must divide Illinois into two states. South Illinois and North Illifornia.
Eleven billion dollar deficit, four and a half billion in unpaid bills driving state contractors and vendors into bankruptcy, and the governor’s only solution is to borrow and raise taxes which will drive more business out of Illinois. We have become Illifornia. This is what happens when you have a lack of leadership, the results are the same as we are suffering at the federal level.
Big changes must be made at both the state and federal levels to right the ship and get back on course. Enough of the liberal experiment. We see now where good intentions lead. A path to somewhere as I recall. Government can’t be all things to all persons. The entitlement state must end or it will kill the host.
We are creating a new generation of dependency non-producers. Who can blame them? Obama now rewards states with bonuses who increase their welfare rolls and has removed the work part of the Clinton welfare to work initiative. Guess that will buy votes, kill the economy as the producers are weighed down by the cost of the non-producers, but buy votes.
A return to sound fiscal economic policy can only occur with a changing of the guard at all levels of government, and a return to our founder’s intent of limited government. That or pay the consequences, or as our generation will be remembered, make our children and grandchildren pay the consequences.
Time to wake up people. November can’t get here fast enough as far as I’m concerned. Folks it doesn’t look good for the economy and the housing market. The exact opposite of what is needed is what Obama is doing, he of zero executive experience, with an administration with only one member with private sector experience.
So much for the egg heads of Harvard and Princeton. Theory doesn’t match reality and the people suffer. At least the egg heads were well intended. Problem is you can’t feed your family on good intentions.
Fritz Pfister is a real estate broker in Springfield Illinois. With over 2100 real estate sales since 1987 is recognized as a local market expert. Fritz hosts Let’s Talk Real Estate live Saturday’s at 10am central streaming live on WMAY.com, and was voted best Realtor by readers of the State Journal Register for the past three years in a row.
Fritz’s website is
SpringfieldHome.com
Can This Happen in America?
It’s the summer of 2012, and congratulations, you just received that promotion and the raise that goes with it. You and your wife are expecting your first child making the eighty year old bungalow you purchased four years ago seem small today.
You decide you want to sell your home and find a new home that will comfortably fit your growing family for the years to come. You’re happy, and excited about the future.
You call your Realtor that sold you your home to now help you sell. The agents asks you, do you have your EPA license to sell yet?
You ask what’s that? The agent explains the Cap and Trade legislation passed in 2010 requires all homeowners to get a license from the EPA before you can transfer the title to a new owner.
You ask how do you do that? The agent tells you to hurry and get on the waiting list because it’s taking EPA four to six weeks to schedule an appointment to perform their audit.
You ask, what type of audit? The agent says, an energy audit. Your insulation, windows, doors, roof, furnace, air conditioner, hot water heater, and appliances must meet EPA required efficiency levels before you can sell.
Your heart sinks. The excitement of moving is disappearing. Your furnace works fine, but is 35 years old. The air conditioner works well too but is fifteen years old. The windows are the original, but have storms and screens. Will that be enough? You have no idea about the insulation. Your appliances, and water heater are only five years old, so they should be OK.
You schedule your energy audit, and bad news. You have to add insulation, replace your furnace, air conditioner, and windows before you can qualify for your EPA license to sell your home. The $350 fee for the audit must be paid now, and the $250 fee to EPA to reinspect must be paid upon return.
The insulation bid didn’t turn out too bad, only $1,100. The furnace and air bid, with combo discount, is $4,800. The windows are another issue. Due to the age of your home every window must have a lead paint test before a bid can be calculated.
The charge for testing your fourteen windows comes in at $700 ($50 apiece). Bad news, there’s lead paint. Due to the new lead paint remodelers law that went into effect way back on April 22, 2010 the cost per window is now $800 instead of $200.
This is because the contractor must encapsulate the entire interior room where each window is being replaced, and for six square feet around the exterior of each window before they can be removed. Failure to do so by the contractor is punishable by an over $10,000 fine per window.
You and your agent get back together to discuss listing your home so you can make that big move. You review the list of improvements the government is requiring before you will be allowed to sell your home. After paying $1,050 for fees and testing here’s your totals; windows $11,200, insulation $1,100, furnace and air $4,800 for a total investment of $17,100 before the government will allow you to sell your home.
You ask the agent if you spend the money will you be able to recover the cost in your sale price. The agent says, regrettably no. Due to the slower market, and diminished demand for homes caused by all the new government mandates, prices have fallen. The probable sale price of the home you paid $110,000 for four years ago is at best $115,000.
The agent says, of course that’s before any selling fees come out of the sale price. So, what’s your payoff? You say we used FHA and only put 3.5% down when we purchased so our payoff is $101,280.
The agent does some quick calculations, and asks; do you have the money to pay for the $17,100 it will take to get your EPA license to sell? Because IF you sell for $115,000, after your mortgage is paid off, property taxes are prorated, brokerage fees paid, and other expenses you will net $2,220 from the sale.
You and your wife decide that second bedroom is plenty big for the baby when she or he arrives.
Can this happen in America? The EPA lead paint rules already are in effect. The EPA license to sell your home is contained in the bowels of proposed Cap and Trade legislation.
My apologies to you Climate Change believers, but Climate Change is at best a gross exaggeration, and at worst a fraud, and surely is being exploited to use as a tool to grant more government power and control over every Americans life.
The insanity must stop. Take a stand against economically devastating, liberty stealing Cap and Trade legislation that is based upon a ruse.
Please don’t call this potential reality fear mongering. You on the left and in the media do so every time when the truth is exposed, just as you did with other disastrous legislation like Obamacare, which is proving daily to be the reality you claimed was simply, fear mongering. Get your head out of the ideological sand.
Fritz Pfister is a real estate broker in Springfield Illinois. With over 2000 real estate sales since 1987 is recognized as a local market expert. Fritz hosts Let’s Talk Real Estate live Saturday’s at 10am central streaming live on WMAY.com, and was voted best Realtor by readers of the State Journal Register for the past three years in a row.
Fritz’s website is
SpringfieldHome.com
Record Home Sales Springfield Illinois April 2010
The end of business Friday May 7 was the deadline for member brokers to report April home sales. Here’s what the members of The Capital Area Association of Realtors reported for April 2010 compared to April 2009:
New listings; 615 up 138 by 28.93%. Closed home sales; 392 up 105 by 36.58%. Pending listings (includes pending continue to show); 639 up 215 by 50.7%. Average sale price; $126,070 up $4,038 by 3.3%. Median sale price; $106,750 up $1,750 by 1.66%.
Here’s the report for the first four months of 2010 compared to 2009:
New listings 2065 up 361 by 21.18%. Closed home sales; 1085 up 149 by 15.91%. Pending listings (includes pending continue to show) 1780 up 336 by 23.27%. Average sale price $120,514 down $886 by .73%. Median sale price; $105,000 even with 2009.
Get ready for the local media to report how great the market is performing. Expect the first quarter report any day that you received on Let’s Talk Real Estate four weeks ago. Expect the report on record April sales in about two to three weeks.
April 2010′s 392 closed home sales beat the 390 record from April of 2004 by 2 sales. During the boom years of 2003 through 2007 we averaged 373 closed home sales in April. Beating that five year average by nineteen sales is some accomplishment.
The 639 listings that went sale pending is a record for any month in any year. Be prepared to see a new record number of closed home sales for May as a result. The record for May is 459 set in 2006.
Whether a record is set for June will be determined by sales activity this month. The record for June was set in 2006 with 467 closed home sales. Sales pending the first week of May are down 6% compared to last May.
I have predicted we would see a slow down following the expiration of the tax credits. I urged anyone wanting to buy or sell a home to put on their track shoes in my March 13th weekly observations, because between then and April 30th would be the busiest of the year. Now we’re going to get to see if that forecast is accurate.
From here forward the activity within the Springfield housing market will be determined by jobs and consumer confidence. Another factor is interest rates. Fence sitters may be moved to action with the threat of rising interest rates. The stock market meltdown this week granted prospective home buyers a reprieve when investors deserted the stock market for the bond market. This should keep rates at near record lows for a few more weeks.
On the jobs front the national unemployment rate jumped to 9.9% from 9.7% as over 800,000 people without jobs who fell off the rolls reentered the job market. 290,000 jobs were reported to have been created in April, the most in four years, however temporary census takers accounted for 66,000 of the jobs created.
The Bureau of Labor Statistics reported weekly first time unemployment claims fell for the third straight week by 7,000 to 444,000 down from an adjusted 451,000 the previous week. Headed in the right direction, however a long ways from the 350,000 weekly number economists say is expected in a growing economy. About 119,000 new jobs are needed each month just to offset those entering the work force.
This is good news and a step in the right direction, however the U-6 that measures those who are working part time but want full time work, with those who have given up looking, comes in at the second highest level on record at 17.1%.
I am willing to be cautiously optimistic, however there are several areas of major concern that simply can’t be ignored. Small businesses continue to struggle. Big business and Wall Street are profiting at the expense of small businesses, and 15.3 million Americans without jobs, due primarily to new federal laws, regulations, and bigger government.
The renewed attempts to pass Cap and Trade legislation that could add $160 billion in annual costs to consumers. The Bush Tax cuts set to expire at the end of the year will harm mostly small business owners. The financial meltdown in Greece threatens to spill over into Spain, Portugal, Italy, Ireland, and Britain ultimately impacting the U.S. economy. That would be bad news for export manufacturers just beginning to recover.
The CBO projects ten trillion dollars will be added to our debt in the next decade. People and businesses see this as a threat to producing massive tax hikes. The rising costs for health care and the $563 billion in new taxes all to be extracted from the private sector. Several major companies are talking of dropping employer paid health insurance as the fines under Obamacare are less expensive. This will increase insurance costs for millions of workers.
Finally the state of the state of Illinois. Election year legislative wheel spinning, and political posturing will result in a deeper deficit, increased monies owed to vendors, and another budget shortfall. None which will do anything good for consumer confidence.
When you add the states woes to the Obama administrations higher taxes, increased regulation, and bigger government, that doesn’t seem to me to be the right formula for creating an economic environment to create jobs or to sustain any recovery. Perhaps I’m wrong, and hope I am, however businesses facing higher costs from taxes, legislation, and regulation probably won’t be too anxious to add to the overhead with new hires.
So when all the rosy stories about the surge in home sales begin to appear, don’t be fooled. It takes time to close out home sales. May and June will be the beneficiaries of the tax credit generated sales pending from March and April.
Where the local housing market is headed and where it will end up, will be determined by sales pending now through July. The closed home sales in April and May are just about history. If you need to sell your home, it really doesn’t matter what has already happened, rather what is happening now.
Fritz Pfister is a real estate broker in Springfield Illinois. With over 2000 real estate sales since 1987 is recognized as a local market expert. Fritz hosts Let’s Talk Real Estate live Saturday’s at 10am central streaming live on WMAY.com, and was voted best Realtor by readers of the State Journal Register for the past three years in a row.
Fritz’s website is
SpringfieldHome.com
Good Is Bad, and Bad Is Good?
OOOOps, I meant to type in ‘million’ not ‘billion’ says the wall street trader who caused a plunge of nearly one thousand points in the DOW on one day this week. The market recovered most of the loss however ended down by almost 350 points that day.
Bad news? No, it’s good news! Especially for the bond market as institutional investors flooded the bond market with their wall street withdrawals. The result? Good news for prospective home buyers. Thirty year mortgage interest rates fell below 5% to around 4.8%. Fifteen year rates fell close to 4% at 4.25%. FHA/VA loans fell to a near record 4.625% on their 30 year loans.
Please check with your local lender to calculate the APR. That’s a made up government rate meant to protect you. Good news right? No, bad news because when the government is set on protecting you, watch out.
For two decades I have witnessed the Annual Percentage Rate as second only to how Illinois collects property taxes, as the most confusing thing consumers encounter when buying or selling a home. Soon to be third behind the new Truth in Lending laws meant to protect the consumer which will, and have resulted in mass confusion, delayed closings, and more work for everyone involved in the home sale. Infinitely more confusing than the old law. Isn’t bigger government good? No, bad in this case.
Member brokers of The Capital Area Association of Realtors MLS reported a record 392 closed home sales in April, besting the old record of 390 set in 2004. An all time record 639 home listings were sold pending in April up over 50%! Good news right?
You bet, for those home sellers that closed or are under contract. But bad news for the over 1600 home sellers still searching for a buyer, 1031 home buyers are now out of the market.
Tax credits for first time and repeat home buyers with an April 30th deadline that spurred this record activity is good news right? You bet, for real estate agents, title companies, appraisers, insurance agents, lenders, and the buyers and sellers of those homes.
Bad news for the 100% of tax payers who will have to pay back the estimated scores of billions in cost plus interest to benefit less than 1% of the population. Bad news for home sellers that didn’t strike pay dirt, they will have to rely upon a depleted buyer pool to find a buyer.
FAQ: Do you think the tax credit will be extended?
Could the ‘good’ tax credit cause the ‘bad’ result of buyers waiting for more tax payer congressional handouts before buying a home? Yes, and that is bad news for home sellers.
Bad news too for home buyers that wait. They could miss out on interest rates that may not be this low again for decades. But then again, good news for buyers who act, because fewer buyers means home prices will fall.
For every action there is a reaction. The laws of economics dictate so. Good news? No, bad news, there’s no escaping this law.
What is good can be bad, what is bad can be good. Go figure. Or as Forrest Gump would say; that’s just one more thang.
Fritz Pfister is a real estate broker in Springfield Illinois. With over 2000 real estate sales since 1987 is recognized as a local market expert. Fritz hosts Let’s Talk Real Estate live Saturday’s at 10am central streaming live on WMAY.com, and was voted best Realtor by readers of the State Journal Register for the past three years in a row.
Fritz’s website is
SpringfieldHome.com