Tim Ireland

2nd Quarter Economic Forecast by John Tuccillo

We are at the point of the economic cycle where economic data is pointing in different directions. The employment numbers are still dismal: June's job losses were far in excess of expectations (although it should be pointed out that May's numbers were better than expected by about the same amount) and the unemployment rate stayed high.But real estate numbers are looking good, the Dow is rallying and there are glints of progress in consumer spending. For housing, existing home sales numbers are rising, inventories have fallen and the pending sales index points to more of the same. Prices are still weak and falling in many places mostly owing to the number of distressed properties on the market, but buyers are showing real interest in these properties and this has set a bottom for the market. Lower priced properties go quickly (sometimes with multiple offers) while more expensive homes languish. All in all, the data are little help.

But wait (as they say on TV), there's more. Actually, mixed data are a good sign because they occur when the economy is turning. The reason I threw the Dow in above is that historically, the economy emerges from recession six months after the Dow turns up. That now looks like it will be in September. The wild card here is the impact of the stimulus. There has been a great deal of criticism that the stimulus has not yet worked (usually from the same folks who didn't want it in the first place). If you look back, the CBO projections were that 10 percent of the effect of the stimulus would be felt in 2009, 60 percent in 2010 and the rest in later years. The turn in the recession will depend on how soon that 10 percent takes effect. I'm still sticking with September.

What about the Chicagoland area? If you look back over the past thirty years, home values have tracked inversely to employment. This makes sense since jobs encourage people to buy homes (they also spark the demand for commercial real estate). The unemployment rate in the MSA has nearly tripled since the beginning of 2007, and the housing and commercial markets have reacted accordingly. Right now, the employment picture in the MSA is worse than the nation because Chicago is a secondary casualty-losing jobs as a result of other areas losing jobs-and the negative impacts of the recession are happening a little later.

Now let's look at the second quarter housing statistics for the MORe market area. The MLS offers a wealth of information and should be your most important tool in educating buyers and sellers on the reality of the market. In looking at MLS data, you should be looking at data that best describes not only the current market but the direction the market will take over the next several months. I described the key indicators in the last quarter report. Unfortunately, for the second quarter, they are pointing in the wrong direction. As compared with the second quarter in 2008, sales for the second quarter of 2009 are down (with the exception of detached single family homes in Cook County) and days on the market are up. The ratio of sales to list price is about even and this suggests that there is increased buyer interest in the market. Bargain hunters, as they are in most markets in the U.S. are coming out in force. The numbers for the second quarter are a bit anomalous in that they don't jibe with the first quarter, which was generally better than the first quarter of 2008. The numbers would suggest that the market is flirting with a bottom, but has not yet reached it.

The problem with looking at a large market area is that your business is often done in a sub area, and gross statistics often misrepresent conditions where you operate. That means that the most effective way to educate buyers and sellers is to take the MLS stats for the areas where you do business and calculate the indicators as described above. That will allow you to make the most accurate case to consumers.

John Tuccillo is one of the foremost real estate and housing finance economists in the United States. He is the owner and president of JTA, LLC, a consulting practice focused on strategic and business planning. His clients have included trade associations, major real estate and other private firms. He was educated at Georgetown University and Cornell University, and holds a doctorate in economics. His books, The Eight New Rules of Real Estate, Click and Close (written with Jim Sherry), and New Business Models for the New Economy are best sellers and have been instrumental in shaping the thinking of real estate industry leaders as they approach the challenge of changing their business models. His latest book, How A Second Home Can Be Your Best Investment , was released by McGraw-Hill in April 2004. He has served as a director or advisor to a number of technology and real estate firms.

John annually gives thirty to fifty speeches, seminars and workshops dealing with real estate markets, the management of real estate firms and real estate finance. He has addressed trade associations (National Association of Realtors, Mortgage Bankers Association of America and the California Association of Realtors, among others) and private companies (Realogy, Prudential Real Estate Associates, ReMax, and others).

From 1987 to 1997 he was Chief Economist for the National Association of Realtors. He is a regular columnist for The Real Estate Professional.

Home Sales Jump More Than 11 Percent in West,South Suburbs New Lenox, Ill. - Sales of single-family detached homes went up 11.6 percent in July compared with the same period a year ago, according to statistics released today by the Mainstreet Organization of REALTORS® (MORe), indicating the second consecutive monthly increase.

MORe measured activity on homes in about 120 southern and western suburban communities through information from Midwest Real Estate Data LLC. Last month's data also showed a 1 percent increase in home sales.

"I think we're seeing a combination of very reasonably priced houses on the market and a built-up number of buyers who recognize now is a good time to take advantage of a large inventory and low pricing," said Christine Chase, Secretary/Treasurer of MORe, and a REALTOR® with Ryan Hill Realty, LLC in Naperville. "The sale increases indicate the federal and local incentives for first-time homebuyers are working; and with a fast-approaching deadline for the federal incentive program, people really need to act rapidly."

There were notable home sales gains across the 120-community area, where the numbers of homes sold leaped by double- and triple-digit percentages.

Standouts in the south suburbs for number of homes sold were Lansing (164 percent increase from a year ago); Matteson (64 percent); Orland Park (34 percent); South Holland (80 percent); and Tinley Park (113 percent).

In DuPage, home sale activity was highest in Addison (58 percent increase from a year ago); Darien (89 percent); Glendale Heights (113 percent); and Westmont (70 percent).

Exceptional sales figures were posted in the western Cook communities of Franklin Park (333 percent increase from a year ago); La Grange (213 percent); La Grange Park (111 percent); and Westchester (229 percent).

In addition, the number of homes under contract (but not yet closed) in the same West and South Suburban Chicago area was 36 percent higher than a year ago, the eighth consecutive month of year-to-year growth in pending sales.

There were standout increases in homes under contract in several suburban communities, particularly in Bloomingdale (225 percent increase from a year ago); Franklin Park (480 percent); Hillside (750 percent); Leyden Township (700 percent); Melrose Park (233 percent); Palos Park (450 percent); Westchester (111 percent); and Willowbrook (350 percent).