Economic And Housing Market Predictions For Springfield Illinois 2010

The ability to make reasonably accurate predictions regarding the economy and the housing market can come from several sources

. The government, academia, or people actually working in the private sector. The latter is where this set of predictions emanates.

Springfield, Illinois enjoys the second lowest unemployment rate in the state at 8.2%. Second only to Bloomington, home to State Farm Insurance, and thousands of jobs. Springfield is the Capital and home to thousands of government jobs. White collar both.

There have been a net loss of 1600 jobs in Springfield since the beginning of the recession in December of 2007. State wide a net loss of 360,800. Manufacturing leading the way with 96,300 jobs lost. All reported in The State Journal Register citing the Illinois Department of Employment Security.

Jobs are the key to the over all health of the economy and the housing market. The number of people working directly impact the success of local businesses, the number of home sales, and as we have learned, the amount of revenue collected at all levels of government.

Jobs are the most important factor that influence the economy, followed in importance, in my opinion, by interest rates, and consumer confidence. To make any type of economic predictions you must make assumptions or predictions regarding these factors.

Interest rates will remain low through most of the year. The Federal Reserve has already stated its position, no increases until an economic recovery is certain, or there are signs of inflation. The only factor that could throw a monkey wrench into this plan would be the bond market, if the government stops monetizing the debt by purchasing bonds at below market rates. In my opinion mortgage rates this year will fluctuate between 5% and 6.25%.

Consumer confidence remains low. The University of Illinois Economics Laboratory forecasts consumer confidence may rise to a reading of 70 in Springfield. A reading of 90 and higher means economic growth.

Why such weak confidence? Job security, and uncertainty. Families are concerned about out of control deficit spending at the federal level that could mean tax increases. The Health Care Reform Bill could mean higher taxes, higher insurance premiums, and added mandatory insurance coverage. Cap and Trade legislation would mean higher costs to heat/cool homes, higher gas prices, and food prices.

Uncertainty reigns at the city, county, and state levels as all struggle with deficits which could lead to tax increases.

The state government is in shambles, faces an $11 billion annual deficit, and has $4.5 billion in unpaid bills. The state government won't be going on a hiring binge with such finances, however did post a net gain of 3500 jobs statewide during the recession. Democrats are fighting over the best way to raise taxes.

The city of Springfield is projecting up to a $12 million deficit in 2010, and has already stated job cuts will be necessary to balance the budget. The county has made the same commitment with the announcement that 14 deputies will be furloughed in January. The city floated a trial balloon for a property tax increase that was met with a firestorm of criticism, and the county has said no tax increase from them. Who knows?

Government, Springfield's largest employer is out as a job source for 2010, and weighs down consumer confidence due to their uncertain budgetary futures.

The second largest employer is the medical community. Just recently there has been talk for the possible loss of doctors from one major physicians group. Part of the reason is the inability of the state to pay its bills. Another factor is a court decision coming soon that could reverse a state law that set limits in malpractice lawsuits to keep doctors from leaving Illinois in droves.

The Department of Employment Security says that the medical community is one area for job growth through 2016. That's probably due to our aging population. Will the demand for services offset the losses suffered from the state not paying their bills, and the potential lawsuit outcome? My guess would be for growth in jobs in the medical sector in 2010.

The saving grace for the local housing market in 2009 were record low interest rates and tax credits to buy a home. The extension, and the expansion of tax credits, along with low interest rates will be the driving force to home sales in 2010. At least until the tax credits expire on April 30.

Low consumer confidence, and jobs will be a drag on the economy and the housing market.

The intial tax credit with the November 30 deadline has caused a cash for clunkers type decline in home listings going under contract in December, down by 12% through Christmas. This doesn't bode well for January closings. You can expect the same following the April 30 deadline. At least this time home buyers have two months after the contract deadline to close their purchase which will help May, and June closings.

These economic factors point to the first half of 2010 as the most active for the year. The wild card will be the state's capital improvement project, and the release of hundreds of billions in stimulus funds in 2010 that could create a temporary spike in the number of jobs. I expect the results to be fleeting.

To date there have been 3.3 million jobs lost since the Stimulus plan was passed, when it was predicted to create 3.5 million jobs by the end of 2010. Not being a naysayer, however that means 6.8 million jobs would have to be created by the end of 2010 to meet the predictions of the Obama administration.

Reminds me of Secretary of Treasury Morganthau under FDR who stated; "We have spent more money than ever, and it does not work. After 8 years we are where we started, and have a load of debt to boot." The secretary was referring to all the government spending and jobs programs that resulted in a 19% unemployment rate, the exact same as when they started eight years earlier. That has always been my concern since the Stimulus bill was passed, bad results and a load of debt. This does nothing to help consumer confidence, or business confidence.

Business confidence is also down for the same reasons as consumer confidence with one caveat, with the federal and state governments in dire need of revenue they are threatening the wealthy with known, and proposed tax increases. Who are these wealthy people who earn over $200,000 a year? Mostly small business owners who account for 60% to 70% of all new jobs created in a given year.

No business owner is going to make plans for growth when their tax burden is about to go up, their costs for health insurance are about to go up, and their costs for energy could be going up. Curtis Dubay Senior Tax Policy Analyst with The Heritage Foundation stated during an interview on my weekly Let's Talk Real Estate program, that the best thing government could do would be to stop talking about raising everyone's taxes.

I agree. Just the threat of tax increases is enough to stop growth plans in their tracks. Just look back when Blagojevich attempted to pass the Gross Receipts tax, it marked the beginning of the downturn in Illinois. It appears it is a full time job for Democrats at the state and federal level to come up with different tax schemes, sucking revenue out of the private sector that could be used for job growth.

The economic outlook in my opinion for Springfield Illinois is for job growth to remain flat, or down in 2010 as governments at all levels struggle financially. Commercial construction will receive a boost with stimulus, and capital plan money keeping unemployment below 10%.

My predictions for the residential market for 2010 are as follows:

* The year will start slowly however the first half of the year will have the most 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. 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 the economic and housing market forecast from a private sector business person. Sorry, no college degree here, or government experience (excepting a stint in the Air Force). Just some old fashioned, from the trenches observations, and predictions.

by: Fritz Pfister

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