2007 sales transactions for Charles Rutenberg Realty in Illinois increased by 6% over 2006. Plus, as of the first of 2008, over 900 agents had joined the Illinois office. New agents are joining at the rate of 25 to 35 each month. While it is generally recognized that 2007 was one of the more difficult real estate markets in 25 years, Charles Rutenberg Realty was able to again sell over one quarter of a billion dollars in real estate. We look forward to continued growth in 2008.
But what will 2008 hold? The following article, prepared by John Tucillo, former economist for NAR, was presented by the North Shore-Barrington Realtor Association. I recommend utilizing John’s comments in your analysis of the market your association covers:
Housing Activity – North Shore and Barrington, January 2008
This year—2008—has begun with the general recognition that the United States economy is weak and getting weaker. The downturn in the real estate sector, intensified by increasing numbers of foreclosures, has rippled through other sectors of the economy both here and abroad. As construction has declined, employment has fallen, building supply companies have seen their revenues shrink, and financial companies have come under stress. Investors in mortgage-backed securities have seen their investments turn sour. The net has been weak employment and GDP growth.
The problem is this. The only thing driving growth during the first part of the century was real estate and that hit the skids in 2005. Nothing has replaced it. We’ve sent all our manufacturing abroad, and our edge in technology has been blunted by our post-9/11 paranoia about letting foreigners live and work here. In a normal cyclical expansion, different sectors of the economy take turns leading growth. In this cycle, nothing stood up when real estate stood down.
I would argue that the economy is heading into recession. Now it may not meet the official definition (two consecutive quarters of economic contraction) but compared to the booming economies of the rest of the world, we are in recession. But this is not new; the economy has been underperforming since emerging from the short and mild recession of 2000-2001. Corporate profits have risen, but not corporate investment. As a result, job growth has been insufficient to keep up with growth in the labor force. The numbers that stunned the stock market in early January (that the December unemployment rate jumped as the economy was creating only 16,000 jobs) are typically of what has been happening regularly in the labor market. In addition, those with jobs increasingly found those jobs paying less, as benefits were cut or employee contributions increased.
Against this backdrop, the housing market in the NSBAR market area has been stable. The figures for the last three months of 2007 have been about the same as the previous quarter, and slightly improved when compared to the same period in 2006. In my last report, I suggested that there are three things that will signal the return of a vigorous market. The first of these three—a decline in new listings continues as the number of new listings for all three months of the fourth quarter was below the same months in 2006. The other two indicators—reduction in days on market and rising sales-to-listing price ratio—are still not occurring, but we will watch for these. Sales in both North Shore and Barrington are either at or above the levels of the fourth quarter of 2006.
The movement of the economy into recession will hurt the housing market here. Additionally, prices always lag sales, so there will be some further price declines. In 2007 (in both North Shore and Barrington), the number of homes on which there were price changes and the number of homes withdrawn from the market both exceeded the number in 2006 (See the housing data section for these numbers). This is an indicator of declining prices in the market. Expect that to continue through 2008. The market is down, but not dead. It is, however, a time for accurate pricing to accomplish sales.
Looking ahead, we see an economy that will improve, but not by much and not for a while. The odds are—barely—that we will skirt a technical recession. Growth will remain positive but unacceptably low with continued sluggish employment growth (see accompanying table) through 2008. Home sales nationally will stop their decline by the end of the year, but will not resume a “normal” growth path until 2009. Prices lag sales and will continue to decline through the end of the year. There will be, however, a significant shift in housing markets in 2008. We will go from a national downturn (affecting virtually all local markets) to local markets with differing conditions. Some areas have taken their full hit and will show signs of recovery in 2008 (I count the NSBAR market area as one of these); some markets were only brushed by the national downturn and will resume a normal sales and price pattern in 2008. Other markets will remain stagnant, weighted down by excess inventories of newly built homes.
The wild card in all this is inflation. Higher oil prices and a falling dollar will push inflation up. Oil is a cost component of a majority of the product we consume and their prices will rise as the increasing price of oil works its way through the supply chain.