By John Tuccillo
This is a most dissatisfying economy. We are growing, but slowly. The numbers are in no way tracking the usual recovery from recession. Employment is stalled: positive job creation numbers that fall far short of what is needed. We are doing well only in the sense of what could have happened if nothing were done. The housing sector is doing a little bit better. After the boost home sales got from the extension and expansion of the buyer tax credit, they fell off dramatically. The late summer showed signs of revival, even in the hardest hit of areas, where investors are scooping up what are outrageous bargains.
There are two issues facing the housing sector and the outcome of these issues will determine if this is going to be a substantial recovery of activity or merely fool’s gold. The first is jobs. It’s very simple: weak job growth, weak home sales. There is no way that the state of the housing market can be untethered from employment. Unless jobs pick up, demand will eventually peter out and the market will be stalled at 2009 (pre-tax credit) levels. So watch the job change numbers both nationally and locally.
The second issue is consumer psychology. The tax credit bolstered sales, but did it create an expectation in buyers’ minds that will hurt sales down the road. Consider the case of retailers. Holiday sales and deep discounting are so well established in the minds of consumers that they do not buy in their absence. So retailers are forced to slash margins more and more. This consumer mentality could be setting in for housing as well. Of course, the significant presence of distressed properties only increases the chances that consumers will not be willing to buy in the absence of deep discounts.
The numbers suggest that both these forces—jobs and consumer psychology—are relatively weak in the NSBAR market area. Most of the signs that indicate an improving market went in the right direction in the third quarter. The primary market indicator, closed sales are up in both Barrington and North Shore both year over year and quarter over quarter. The trends show that despite the tax credit-driven spike in sales in the spring, the market is gradually improving. If you average sales numbers form April through July, the trend in sales is definitely up.
More important, the predictive indicators are all good. New listings (and inventory) are down, days on the market are unchanged or down and the ratio of sales price to listing price is up slightly. All these suggest a future in which the market will be moving to a more even relationship between buyers and sellers, and thus a return to “normal.” The trends we have seen shaping up in the first nine months of 2010 should continue through the rest of the year.
What about beyond that? I think we will get mixed results in 2011 with the outcome being a slowly improving economy. There will be improved jobs growth, perhaps because of the actions of the Fed to increase liquidity and credit or from the buoyancy that always follows an election. But don’t expect a huge outburst of wither jobs or growth. We are operating on momentum: this economy is so large that it must grow at a certain minimum rate in the absence of any negative forces. That means more of the same for 2011. By the end of the year, we may be dealing with inflation, but that’s a story for another day.
John Tuccillo and Associates (JTA) is an economics and business consulting firm serving the real estate, finance, and technology sectors providing forecasting, analysis, planning, and consulting. Tuccillo writes the above quarterly report on the market and specifically the North Shore and Barrington area for NSBAR. For more information on Tuccillo, visit johntuccillo.com.